• USD/CAD meets with some supply on Tuesday and snaps a two-day winning streak.
• A positive risk tone undermines the safe-haven USD and exerts pressure on the pair.
• The mostly inline Canadian inflation figures fail to provide any meaningful impetus.

The USD/CAD pair recovers a few pips from the daily low and trades with modest intraday losses, around the 1.3380 region following the release of the latest Canadian consumer inflation figures.

Statistics Canada reported this Tuesday that the headline CPI rose 0.5% in March as compared to 0.4% in the previous month and the yearly rate decelerated from 5.2% in February to 4.3%, both matching consensus estimates. More importantly, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, eased to a 4.3% YoY rate against market expectations for a fall to 4.2% from the 4.7% recorded in the previous month.

The data, meanwhile, does little to influence the Canadian Dollar, though broad-based US Dollar (USD) weakness continues to exert some downward pressure on the USD/CAD pair. The stronger-than-expected Chinese growth figures released earlier this Tuesday ease fears about a deeper global economic downturn and boost investors' confidence. This remains supportive of a generally positive risk tone and undermines the safe-haven buck.

That said, speculations that the Federal Reserve (Fed) will continue lifting interest rates should act as a tailwind for the buck and help limit the downside for the USD/CAD pair, at least for the time being. In fact, the current market pricing indicates a greater chance of another 25 bps lift-off at the next FOMC meeting in May. This remains supportive of elevated US Treasury bond yields and supports prospects for the emergence of some USD dip-buying.

Hence, it will be prudent to wait for strong follow-through selling before confirming that the USD/CAD pair's recent bounce from the 1.3300 mark, or a two-month low touched last week, has run its course. From a technical perspective, the overnight failure to find acceptance above the very important 200-day Simple Moving Average (SMA) warrants some caution for bullish traders and before positioning for any meaningful near-term appreciating move.

Technical levels to watch