USD/CAD rises amid falling oil prices, remains below mid-1.3600 ahead of Canadian CPI

• A combination of factors is helping the USD/CAD rate recover from its one-month low hit on Tuesday.
• Falling crude oil prices are weakening the loonie and providing support amid a modest recovery in the US dollar.
• The upside potential remains limited as traders now look to Canadian inflation numbers for fresh impetus.

USD/CAD is recovering slightly from the 1.3625 area, or above a one-month low, touched during the Asian session on Tuesday, and appears to have ended a two-day losing streak for now. However, spot prices remain below the mid-1.3600s as traders appear unwilling to place aggressive bets ahead of Canadian consumer inflation numbers due to be released later today.

Canada's consumer price index is expected to fall for the second month in a row, providing further signs of easing inflation, which could encourage the Bank of Canada (BoC) to adopt a looser monetary policy amid the slack in the labor market. This, in turn, could weigh heavily on the Canadian dollar (CAD) and help the USD/CAD pair benefit from the modest recovery move during the day.

Ahead of the key microdata, the continued decline in crude oil prices fueled by optimism over the possibility of a ceasefire in Gaza is seen as a drag on the commodity-linked loonie. This, coupled with a modest recovery in the US dollar (USD) from its lowest level since January reached early Tuesday, is proving to be another factor leading to some intraday short covering around the USD/CAD pair.

However, any significant upside for the greenback seems unlikely given the growing acceptance that the Federal Reserve (Fed) will begin its rate-cutting cycle in September. That being said, the positive market sentiment may further help cap the dollar's gains. Therefore, some caution is warranted before confirming that the USD/CAD pair has formed a short-term bottom ahead of the 1.3600 mark.

Traders may also prefer to wait for further clues on the Fed's rate cut path before positioning or taking the next leg of a direction. Therefore, the market's attention will then turn to the release of the July FOMC meeting minutes, which are due on Wednesday. This, along with Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, will influence the USD and provide significant momentum to the USD/CAD pair.