USD/CAD holds ground above 1.3650 as Oil prices decline

• USD/CAD faces challenges as the commodity-linked CAD struggles due to lower Oil prices.
• WTI Oil price depreciates due to a slowing Chinese economy but its downside could be limited by lower US Oil stockpiles.
• Traders await speeches from Fed officials Thomas Barkin and Christopher Waller on Wednesday.

USD/CAD retraces its recent losses from the previous session, trading around 1.3680 during the early European hours on Wednesday. Lower crude Oil prices put pressure on the commodity-linked Canadian Dollar (CAD). Given the fact that Canada is the biggest Oil exporter to the United States (US).

West Texas Intermediate (WTI) Oil price trades around $79.80 per barrel at the time of writing. This decline is attributed to a slowing Chinese economy, which is reducing demand in the world's largest Oil-importing country.

However, the Oil price may limit its downside due to the declining US Oil stockpiles. The American Petroleum Institute (API) reported a decline of 4.4 million barrels in weekly crude Oil stock for the week ending July 12. Analysts surveyed by Reuters had estimated a smaller decrease of 33,000 barrels. The US Energy Information Administration will release its official storage report later in the North American session.

On Tuesday, data showed that Canada's headline inflation rate eased to 2.7% in June, down from 2.9% in the previous month. This aligned with expectations and marked the sixth consecutive month within the Bank of Canada's (BoC) target range.

The softer Canadian inflation readings have spurred expectations that the Bank of Canada (BoC) would cut interest rates further next week. "The inflation data for June gave the Bank of Canada what it needed in order to cut interest rates at next week's meeting," said Katherine Judge, senior economist at CIBC Capital Markets.

Federal Reserve (Fed) Board of Governors member Dr. Adriana Kugler recently noted that while inflationary pressures have eased, the Fed requires more data to justify a rate cut. Dr. Kugler suggested that if upcoming data fails to show progress towards the 2% inflation target, maintaining current rates longer may be appropriate.

Market focus turns to key US economic data and the Fed Beige Book on Wednesday, alongside speeches from Fed officials Thomas Barkin and Christopher Waller.