USD/CAD fluctuates in tight range below 1.3200 ahead of FOMC

• Crude oil's rebound helped CAD recover its losses against USD.
• US Dollar Index stays above 98 on Wednesday.
• FOMC is expected to keep its policy rate unchanged.

After rising to its highest level in more than a month at 1.3106 on Tuesday, the USD/CAD pair lost its traction and closed the day in the negative territory as the decisive recovery witnessed in crude oil prices helped the commodity-sensitive CAD find demand. With the market action turning subdued ahead of the FOMC's monetary policy announcements, the pair is consolidation Tuesday's losses and was last seen trading at 1.3177, adding 0.16% o a daily basis.

The barrel of West Texas Intermediate, which erased nearly 8% in the last ten days on heightened fears over the negative effect of the coronavirus on oil demand, rose more than 2% on Tuesday and has been moving sideways near $54 since the start of the day on Wednesday.

Eyes on FOMC

On the other hand, the US Dollar Index is staying above the 98 handle and not allowing the pair to turn south. Later in the day, the FOMC will release its policy statement and Chairman Jerome Powell will be delivering his comments on the policy outlook in a press conference. 

Previewing this event, "it is too early for the Fed to react to the recent sell-off. During the Q&A session at the press conference starting 20:30 CET, Powell is likely to be asked about his views on the recent development but we expect him to state that it is one of the risks the Fed is monitoring," said Danska Bank analysts. "In other words, the Fed is probably not going to strike a dovish tone given the labour market continues to tighten and private consumption growth remains solid.”

Technical levels to watch for