USD/CAD builds on softer Canadian CPI-inspired recovery from YTD low, retakes 1.3200

• USD/CAD gains traction for the second straight day and recovers further from the YTD low.
• Tuesday’s softer Canadian CPI print undermines the CAD and lends some support to the pair.
• The emergence of some USD buying acts as a tailwind ahead of Fed Chair Powell’s appearance.

The USD/CAD pair builds on the previous day's goodish rebound from the 1.3115 area, or its lowest level since September 2022 and gains positive traction for the second successive day on Wednesday. The momentum lifts spot prices to a fresh weekly high, above the 1.3200 mark during the Asian session and is sponsored by a combination of factors.

The Canadian Dollar (CAD) continues to be weighed down by the softer domestic data released on Tuesday, which showed that consumer inflation fell to its slowest pace in two years. In fact, Statistics Canada reported that the headline CPI decelerated to the 3.4% YoY rate in May from 4.4% in the previous month. Moreover, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, misses consensus estimates and dropped to 3.7% on a yearly basis from 4.1% in April. Apart from this, the overnight slide in Crude Oil prices undermines the commodity-linked Loonie, which, along with a modest US Dollar (USD) strength, acts as a tailwind for the USD/CAD pair.

Tuesday's upbeat US macro data reaffirms expectations that the Fed will likely continue raising interest rates to slow demand in the overall economy, which, in turn, assists the USD to regain positive traction and snap a three-day losing streak. In fact, the US Census Bureau reported that Durable Goods Orders in the US rose for the third straight month, by 1.7% in May, against the 1% decline anticipated. Adding to this, the Conference Board's Consumer Confidence Index climbed to 109.7 in June - the highest since January 2022 - from 102.5 in the prior month. Furthermore, New Home Sales rose 12.2% in May, indicating that the US housing market has been able to weather rising interest rates.

Any meaningful upside for the USD/CAD pair, however, seems limited as markets are still pricing in a greater chance of another 25 bps rate hike by the BoC in July. Traders also seem reluctant to place aggressive bets and prefer to wait for Fed Chair Jerome Powell's appearance at the ECB Forum on Central Banking in Sintra later this Wednesday. Market participants will look for fresh clues about the Fed's future rate-hike path, which, in turn, will drive the USD demand and provide some impetus to the USD/CAD pair later during the early North American session. Apart from this, Oil price dynamics will be looked upon to grab short-term trading opportunities around the major.

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