USD/CAD Continues To Trade In a Tight Range Near The Mid-1.3200s

Throughout the Asian session on Tuesday, the USD/CAD pair maintains its familiar trading range near the middle of the 1.3200s.

Consumer inflation slowed to a nearly two-year low in May, according to domestic data released last week, which weighs on the Canadian Dollar (CAD).  This diminishes the case for the Bank of Canada (BoC) to raise interest rates in July. Aside from this, a decline in the price of crude oil further weakens the commodity-linked Canadian dollar and functions as a tailwind for the USD/CAD pair, although subdued demand for the US Dollar (USD) continues to limit the upside. This, in turn, necessitates prudence prior to placing aggressive wagers on the major and positioning for a definitive near-term direction.

Despite supply concerns stemming from reductions in August by leading exporters Saudi Arabia and Russia, Crude Oil prices remain on the defensive due to concerns that a global economic slowdown will dampen fuel demand. Recall that Saudi Arabia announced on Monday that it would extend its voluntary output limit of one million bpd until August. In addition, Alexander Novak, Russia's Deputy Prime Minister, announced that the country will reduce crude exports by 500,000 bpd in August. The news did provide a modest boost to the black liquid, although the market's initial reaction dissipates rather quickly.

In contrast, the USD continues to struggle to gain traction in the aftermath of uncertainty surrounding the Federal Reserve's (Fed) rate hike path. It is important to recall that the US central bank indicated in June that financing costs may still need to rise by up to 50 basis points by the end of the year, and Fed Chair Jerome Powell reinforced this outlook last week. In spite of this, the incoming US macro data has fueled rumours that the central bank will soften its hawkish posture sooner rather than later, which keeps USD bulls on the defensive and caps the USD/CAD pair.

Traders appear reluctant to place aggressive wagers in the aftermath of the Fourth of July holiday in the United States and ahead of this week's significant releases. The FOMC meeting minutes, which are due on Wednesday, will be scrutinised for fresh hints about the future rate-hike path, which will play a significant role in driving USD demand. On Friday, the focus will then transition to the monthly employment reports from the United States and Canada. Together with Oil price dynamics, this should help determine the next leg of the USD/CAD pair's direction.