Wednesday during the Asian session, the USD/CAD pair oscillates in a narrow band, unable to capitalise on the roughly 90-pip intraday recovery from a multi-day low that occurred overnight. Traders are eagerly anticipating the Bank of Canada's (BoC) policy decision prior to determining the next phase of a directional move. Spot prices are presently just below the mid-1.3700s, which is a high reached on Tuesday after nearly three weeks.

Amid a decline in consumer and business confidence, the Canadian central bank is anticipated to maintain its benchmark interest rates at a 22-year high of 5.0% for the second consecutive month in October. As evidence of alleviating inflationary pressures emerges, the BoC might also exhibit diminished conviction regarding the necessity for a more aggressive policy tightening. This, in conjunction with the recent decrease in the price of crude oil, is perceived to weaken the commodity-linked Loonie and provides a tailwind for the USD/CAD pair.

As the central bank event risk approaches, bullish traders appear apprehensive about initiating new wagers following the lacklustre price action of the US Dollar (USD). In addition to a generally favourable risk sentiment, declining US Treasury bond yields prevent the safe-haven greenback from building on the previous day's strong recovery from a level not seen in over a month. Consequently, this is considered a significant headwind for the USD/CAD pair. In contrast, the USD's decline remains constrained in light of hawkish expectations regarding the Federal Reserve (Fed).

Tuesday's publication of the flash version of the US PMIs revealed that manufacturing activity exited contractionary territory for the first time in six months, while services activity moderately accelerated in October. Despite an increase in interest rates, this was interpreted as evidence that the US economy remains resilient, allowing the Fed to continue its rate-hiking cycle in an effort to contain inflation. In contrast, the outlook should impede a significant decline in US bond yields and benefit USD supporters.

Based on the fundamental environment mentioned earlier, it appears that the USD/CAD pair has a favourable trajectory towards the upside, and any corrective declines could still be perceived as advantageous purchasing opportunities. It appears that spot prices are on the verge of surpassing a multi-month high reached around 1.3785 on October 6. Following through with purchases that result in subsequent strength surpassing the 1.3800 level, a new breakout will be validated and a path for a further near-term uptrend will be created.

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