USD/CAD remains confined in a range around 1.2400 mark, focus remains on FOMC

• USD/CAD continued with its struggle to register any meaningful recovery from one-month lows.
• Last week’s hawkish BoC decision, an uptick in oil prices underpinned the loonie and capped gains.
• A pickup in the US bond yields benefitted the USD and helped limit losses ahead of the FOMC decision.

The USD/CAD pair extended its sideways consolidative price action through the early European session and remained confined in a narrow trading band near the 1.2400 mark.

The pair, so far, has struggled to register any meaningful recovery and remained well within the striking distance of one-month lows, around the 1.2385 region touched earlier this week. The Canadian dollar continued benefitting from last week's more hawkish BoC decision to reduce its weekly asset purchases. The Canadian central bank also brought forward the guidance for the first interest rate hike to the second half of 2022.

Apart from this, an uptick in crude oil prices further underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair. That said, the downside remains cushioned amid a modest pickup in demand for the US dollar, which found some support from a strong rally in the US Treasury bond yields. Tuesday's upbeat US economic data pushed the yield on the benchmark 10-year US government bond back above the 1.60% threshold.

In fact, the Conference Board's US Consumer Confidence Index jumped to pre-pandemic highs and rose to 121.7 in April from the 109.0 previous. The USD bulls further took cues from the continuous rise in inflation expectations, which might force the Fed to start laying the groundwork for a future policy tightening soon. Hence, the key focus will remain on the latest FOMC monetary policy decision, scheduled to be announced later this Wednesday.

The US central bank is expected to leave its policy settings unchanged, while Fed Chair Jerome Powell might stick to the view that the recovery is incomplete and that more support is warranted. That said, any hawkish surprise might trigger some aggressive short-covering move around the greenback and provide a strong lift to the USD/CAD pair.

Technical levels to watch