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The USD/CAD pair struggles to capitalise on the late overnight rebound from 1.3285, or a three-month low, and remains on the defensive throughout Wednesday's Asian session. Despite this, spot prices remain above the 1.3300 level as traders eagerly await the outcome of the FOMC monetary policy meeting before placing fresh direction wagers.

The Federal Reserve (Fed) is scheduled to announce its decision later today, and it is widely anticipated that it will refrain from raising interest rates due to the below-consensus US consumer inflation reading. In actuality, the US Labour Department reported on Tuesday that the headline CPI scarcely increased in May and that the annual rate slowed from 4.9% to 4%, the smallest increase since March 2021. This, in turn, prevents the US Dollar (USD) from recovering meaningfully from a three-week low reached the day before and functions as a headwind for the USD/CAD pair.

Meanwhile, the year-over-year inflation rate remains double the Fed's 2% objective, supporting the likelihood of additional policy tightening by the US central bank. It is important to remember that the markets have been pricing in an increased likelihood of an additional 25 basis point rate hike at the July FOMC meeting. Fed Chair Jerome Powell's comments at the post-meeting press conference, which will be closely analysed for hints about the future rate hike course, will also be a major focus. This will play a significant role in determining the USD's price dynamics and provide the USD/CAD pair with fresh directionality.

In advance of a key central bank event risk, investors' apprehension is reflected in the equity market's generally softer tone, which could provide support for the safe-haven Greenback. Aside from this, a modest decline in the price of crude oil could weaken the commodity-linked Canadian dollar and limit the downside for the USD/CAD pair, at least for the time being. Concerns that a global economic downturn, particularly in China, will reduce fuel demand do not help Crude Oil prices capitalise on the first day in the previous five that saw a significant overnight increase.

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