USD/CAD remains on the defensive below 1.3400, eyes Canadian CPI for fresh impetus

• USD/CAD remains on the defensive, though a combination of factors helps limit losses.
• BoC Governor sees rate cuts in 2024 and overshadows the recent bounce in Oil prices.
• Fed officials push back against bets for early rate cuts and lend some support to the USD.

The USD/CAD pair struggles to capitalize on the previous day’s goodish bounce from mid-1.3300s or a three-month low and trades with a mild negative bias, just below the 1.3400 mark during the Asian session Tuesday.

The downside, however, remains cushioned in the wake of the overnight dovish remarks by the Bank of Canada (BoC) Governor Tiff Macklem, saying that the central bank could start cutting rates sometime in 2024. The markets were quick to react and expect the BoC to begin easing as soon as April, with a cumulative rate cut of at least 100 bps by the end of next year. This, in turn, should act as a tailwind for the USD/CAD pair, despite the recent goodish recovery in Crude Oil prices, which tends to benefit the commodity-linked Loonie.

Apart from th is, a modest US Dollar (USD) uptick should lend support to spot prices and limit any depreciating move. Chicago Federal Reserve (Fed) President Austan Goolsbee, along with Cleveland Fed President Loretta Mester, on Monday pushed back against market bets for early interest rate cuts. This comes on the back of New York Fed President John Williams’s remarks on Friday that it was premature to speculate about rate cuts. Apart from this, geopolitical risks benefit the USD’s relative safe-haven status against its Canadian counterpart.

Traders, meanwhile, seem reluctant to place aggressive directional bets around the USD/CAD pair and prefer to wait for the release of the latest consumer inflation figures from Canada for a fresh impetus later during the North American session. The US economic docket, meanwhile, features housing market data – Building Permits and Housing Starts. Apart from this, a scheduled speech by Richmond Fed President Thomas Barkin will influence the USD, which, along with Oil price dynamics, should produce short-term trading opportunities.

Technical levels to watch