Intraday, USD/CAD Struggles To Find a Clear Direction, Remaining Range-Bound Around 1.3200

Throughout Tuesday's Asian session, the USD/CAD pair struggles to acquire traction and oscillates in a narrow trading band of 15-20 pips around the 1.3200 level.

Following the two-day retracement from a nearly three-month high, Crude Oil prices regain some positive momentum and support the commodity-linked Canadian dollar. In contrast, the US Dollar (USD) remains within striking distance of its lowest level since April 2022 due to rising wagers on a less hawkish Federal Reserve (Fed). Consequently, this is viewed as a significant factor operating as a headwind for the USD/CAD pair.

After the highly anticipated 25 basis point rate hike in July, the markets have priced out the possibility of any additional rate hikes by the US central bank for the remainder of the year. The incoming US macro data pointed to indicators of a cooling labour market and a further moderation in consumer prices, which fueled the expectations. This has contributed to the recent decline in US Treasury bond yields and keeps USD supporters on the back foot.

A positive reversal in global risk sentiment, as illustrated by the overnight rally in US equity markets, is also viewed as a factor bearing on the safe-haven dollar. However, market participants argue that the USD has fallen too quickly and too far. Aside from this, the possibility that the Fed will adhere to its forecast of a 50 basis point rate hike by the end of the year discourages traders from placing fresh adverse wagers on the US dollar.

This, along with concerns that a global economic slowdown will reduce fuel demand, should keep a cap on any significant increase in Crude Oil prices and help limit the USD/CAD's downside. In the meantime, the fundamental environment makes it prudent to wait for robust follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for an extension of the recent recovery from levels below $1.3100 or last Friday's yearly low.

Ahead of the publication of the Canadian consumer inflation figures, expected later in the early North American session, traders may also refrain from placing aggressive bets and opt to remain on the sidelines. Traders will also consider the monthly US Retail Sales figures. Along with US bond yields and a broader risk sentiment, this may drive USD demand. In addition, Oil price dynamics should provide some support for the USD/CAD.