USD/CAD is hovering right above 1.3550 ahead of US CPI data

• The Dollar maintains a negative tone with all eyes on US CPI data.
• US inflation and Fed policy expectations are likely to set the USD’s near-term direction.
• Oil prices’ recovery is underpinning support for the Loonie.

The US Dollar is trading lower against its Canadian counterpart on Tuesday, with the pair moving dangerously close to the 1.3550 support level and all eyes on November’s US CPI report, due later today.

Consumer inflation is expected to have increased at a 3.1% yearly pace, slightly below October’s 3.2% reading while the Core CPI is seen steady at 4%.

US CPI will set the tone for Wednesday’s Fed decision

These figures will be analyzed with special interest as they will set the groundwork for Wednesday’s Federal Reserve monetary policy decision. Investors are speculating about the timing for a Fed pivot and, in this context, any surprise on inflation levels might have a significant impact on the US Dollar.

On the other hand, the Canadian dollar is drawing some support from the higher Oil prices. The US benchmark WTI has bounced higher, favoured by the increasing geopolitical tensions in the Middle East and news of US plans to refill its strategic reserves.

This rally, however, is likely to be short-lived, as the OPEC+ pledge to extend output cuts has failed to offset concerns of oversupply with global demand expected to decline over the coming months.

Technical levels to watch