USD/CAD corrects from monthly top, downside remains cushioned ahead of FOMC

• USD/CAD retreated from over a one-month high amid some USD profit-taking slide.
• Sliding crude oil prices undermined the loonie and helped limit losses for the major.
• Aggressive Fed rate hike bets acted as a tailwind for the USD and extended support.

The USD/CAD pair witnessed an intraday turnaround from the 1.2970-1.2975 area on Wednesday and for now, has snapped a five-day winning streak to over a one-month peak touched the previous day. The pullback dragged spot prices to a fresh daily low, around the 1.2915 region heading into the North American session.

A sharp retracement slide in the US Treasury bond yields prompted the US dollar bulls to take some profits off the table, especially after the recent runup to a two-decade high. This, in turn, exerted downward pressure on the USD/CAD pair amid some repositioning trade ahead of the key central bank event risk later this Wednesday.

The Federal Reserve is scheduled to announce its monetary policy decision later during the US session and is expected to hike interest rates by 75 bps - the biggest since 1994. Moreover, Fed fund futures indicate rising odds of another jumbo rate hike in July, which should continue to lend support to the greenback and the USD/CAD pair.

Apart from this, a softer tone around crude oil prices could undermine the commodity-linked loonie and further help limit any meaningful corrective slide for the USD/CAD pair. The worsening global economic outlook has raised concerns about fuel demand and dragged the black liquid away from a three-month high touched the previous day.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CAD pair has topped out in the near term and positioning for any further losses. Next on tap would be the release of the US monthly Retails Sales figures. The data might do little to influence the buck or provide any impetus to the major.

Technical levels to watch