• USD/CAD attracts some intraday selling on Tuesday, though the downside remains limited.
• An uptick in Oil prices underpins the Loonie and exerts pressure amid renewed USD selling.
• Hawkish Fed expectations warrant caution before positioning for any meaningful decline.

The USD/CAD pair attracts fresh sellers following an intraday uptick to mid-1.3800s and drops to a fresh daily low during the first half of the European session. Spot prices, however, manage to hold above the 1.3800 round figure and seem poised to prolong over a three-week-old uptrend.

A modest uptick in Crude Oil prices is seen underpinning the commodity-linked Loonie. Apart from this, a generally positive tone around the equity markets drags the safe-haven US Dollar (USD) to a one-week low, which, in turn, is seen exerting some pressure on the USD/CAD pair. Any meaningful corrective decline, however, still seems elusive ahead of the key central bank event risk – the outcome of the highly-anticipated two-day FOMC monetary policy meeting starting this Tuesday.

The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday and is widely anticipated to keep its benchmark interest rate steady in the range of 5.25%-5.50%, or the highest in 22 years. That said, the US economic resilience, along with still sticky inflation, should allow the US central bank to keep the door open for one more rate hike in 2023. The hawkish outlook remains supportive of elevated US Treasury bond yields, which should lend support to the buck and the USD/CAD pair.

Furthermore, investors remain concerned about the worsening economic conditions in China – the world's top oil importer. This, along with worries that headwinds stemming from rapidly rising borrowing costs could dent fuel demand, keeps a lid on any meaningful upside for Crude Oil prices. Apart from this, the Bank of Canada (BoC) Governor Tiff Macklem's dovish signal last week, indicating that interest rates may have peaked, should contribute to limiting the downside for the USD/CAD pair.

Next on tap is the US economic docket – featuring the release of the Chicago PMI and the Conference Board's Consumer Confidence Index later during the early North American session. Apart from this, the US bond yields will drive the USD demand, which, along with Oil price dynamics, should provide some impetus to the USD/CAD pair. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Technical levels to watch