• USD/CAD recovers from the recent losses ahead of US Headline CPI.
• Improved WTI price contributes support for the Canadian Dollar’s (CAD) strength.
• Investors await US inflation figures to gain clearer insights into the Fed policy decision.

USD/CAD trades higher around 1.3580 during the European session on Tuesday, snapping the two-day losing streak. The pair faced challenges due to the downbeat US Dollar (USD) on Monday. However, the improved US Treasury yields might limit the losses of the buck.

The improved prices of WTI Crude oil are contributing to the support in strengthening the Canadian Dollar (CAD) as Canada is one of the largest suppliers of crude oil to the United States. This scenario is acting as a limiting factor on the potential strength of the USD/CAD pair.

Western Texas Intermediate (WTI), the US crude oil benchmark, trades higher around $87.30 per barrel at the time of writing. This price level is being supported by the prolonged crude output cuts implemented by Saudi Arabia and Russia, propelling WTI prices to their highest levels since November 2022.

Bank of Canada (BoC) Governor Tiff Macklem indicated on Thursday that monetary policy might need to be appropriately restrictive to restore price stability. However, Macklem also expressed concern about the persistence of underlying inflation.

US Dollar Index (DXY), which measures the performance of the US Dollar (USD), trades higher around 104.80. The Greenback is anticipated to remain resilient, supported by the continuous stream of positive economic data from the United States (US).

Investors will closely watch the upcoming release of the Consumer Price Index (CPI) for August from the US, scheduled for Wednesday. This data release could offer additional insights into the US inflation situation.

US CPI is expected to show a 0.5% month-on-month increase, representing an improvement from the previous period's 0.2% reading. While the Core CPI figure is anticipated to remain consistent at 0.2%.

Investors have been pricing in the odds of a 25 basis point (bps) interest rate hike by the US Federal Reserve (Fed) in November or December meetings. Along with this, the Fed is expected to sustain higher interest rates over a prolonged period. This hawkish tone might lift the US Dollar USD) and limit the downside of the USD/CAD pair.