• USD/CAD is aiming to recapture the critical resistance of 1.3500 amid a delay in the approval of a higher US debt-ceiling limit.
• The USD index rebounded strongly despite weaker-than-anticipated monthly US Retail Sales data.
• A rebound in Canada’s inflation might force the Bank of Canada (BoC) to reconsider its neutral interest rate policy stance ahead.

The USD/CAD pair has shown a V-shape recovery from near the round-level support of 1.3400 as negotiations between White House and Republican leaders concluded without a constructive outcome. Reuters reported that the meeting ended on an upbeat and unexpected note as McCarthy, coming out of the meeting with Biden and other congressional leaders, said, "It is possible to get a deal by the end of the week."

S&P500 futures are showing some gains in the Asian session as the Federal Reserve (Fed) is highly likely to hold the interest rate policy steady in June. The overall market mood has turned cautious amid further delay for an urgent outcome from the US debt ceiling negotiations.

The US Dollar Index (DXY) is showing signs of volatility contraction around 102.70 and is expected to add more gains ahead. On Tuesday, the USD index rebounded strongly despite weaker-than-anticipated monthly US Retail Sales data (April). The economic data expanded at a slower pace at 0.4% against the estimate of 0.7%. A mild expansion is insufficient to impact expectations for a steady monetary policy but is also not strongly supportive of holding interest rates ahead.

On the Canadian Dollar front, inflation figures have turned out persistent. Annual headline Consumer Price Index (CPI) (April) landed at 4.4%, higher than the consensus of 4.1% and the former release of 4.3%. While the core inflation landed between the estimates of 3.9% and the prior release of 4.3% at 4.1%. This might force the Bank of Canada (BoC) to reconsider its neutral interest rate policy stance ahead.