• USD/CAD gains traction for the second straight day and climbs to its highest level since January.
• Tuesday’s softer Canadian CPI, bearish oil prices undermine the Loonie and remain supportive.
• Hawkish Fed expectations favour the USD bulls ahead of the crucial FOMC meeting minutes.

The USD/CAD pair attracts some buying for the second straight day on Wednesday and touched its highest level since January 6 during the first half of the European session. The pair currently trades around the 1.3550 region and seems poised to prolong its recent upward trajectory witnessed over the past week or so.

A combination of factors undermines the Canadian Dollar, which, in turn, assists the USD/CAD pair to capitalize on the previous day's strong move up and gain traction for the second straight day. The softer Canadian consumer inflation figures released on Tuesday fueled speculations that the Bank of Canada could pause the rate-hiking cycle. Adding to this, bearish Crude Oil prices - amid worries that rapidly rising borrowing costs will dampen economic growth and dent fuel demand - further weighs on the commodity-linked Loonie.

The US Dollar, on the other hand, continues to draw support from firming expectations that the Federal Reserve will stick to its hawkish stance. In fact, the markets are pricing in at least a 25 bps lift-off at the next two FOMC policy meetings in March and May. The bets were reaffirmed by strong US PMIs on Tuesday, which showed that business activity unexpectedly rebounded to an eight-month high in February. The data pointed to an economy that remains resilient and support prospects for further policy tightening by the Fed.

Moreover, several FOMC officials, including Chairman Jerome Powell, recently stressed the need to keep raising rates gradually to fully gain control of inflation. Hence, the focus will remain glued to the release of the FOMC monetary policy meeting minutes, due later during the US session. Investors will look for fresh cues about the Fed's rate-hike path, which will influence the USD and provide a fresh impetus to the USD/CAD pair. Apart from this, oil price dynamics could further contribute to producing meaningful trading opportunities.

Technical levels to watch