Anna 
The USD/CAD pair is treading cautiously, hovering in a narrow trading band in the first half of the European session on Wednesday. Despite struggles to capitalize on recent gains, spot prices manage to stay above the psychological level of 1.3500. Traders are eagerly awaiting the release of the FOMC meeting minutes, a key event that could shape the pair’s future direction.
Investors are closely scrutinizing the minutes for insights into the Federal Reserve’s (Fed) stance on rate cuts, which will significantly impact the dynamics of the US Dollar (USD) and offer fresh guidance for USD/CAD. Market sentiment currently discounts the likelihood of imminent rate cuts by the Fed, supporting elevated US Treasury bond yields. Coupled with a subdued risk appetite, this provides some backing for the safe-haven USD, restricting downside potential for the currency pair.
Furthermore, expectations of a prolonged period of higher interest rates from the Fed have implications for fuel demand, contributing to a second consecutive day of declining Crude Oil prices. Soft Canadian consumer inflation data released on Tuesday has also weakened the Loonie, aiding the USD/CAD pair. Canadian CPI decelerated to a 2.9% YoY rate in January, while core inflation measures hit their lowest levels in over two years.
In addition, concerns about potential disruptions in the Middle East due to recent attacks in the Red Sea by Houthi rebels in Yemen could act as a supportive factor for Oil prices. This geopolitical tension may restrain aggressive bearish bets against the Canadian Dollar (CAD). The recent range-bound price action over the past two weeks calls for caution, highlighting the need for relevant economic data to confirm a clear near-term direction for the USD/CAD pair.
