The USD/CAD pair has shown a solid recovery move from 1.3340 in the European session. The Loonie asset has got some strength as the oil price has shown some stability after a sheer sell-off to near $67.00. Also, the US Dollar Index (DXY) is making efforts in defending its immediate support of 103.20 but still looks vulnerable.

S&P500 futures have generated significant gains in Europe as the Federal Reserve (Fed) is expected to sound neutral on interest rate policy while delivering its monetary policy statement. The USD Index is struggling to keep its auction above 103.20 as the risk appetite theme has trimmed its appeal.

Later in the day, the United States Consumer Price Index (CPI) data (May) will be of utmost importance. Analysts at Credit Suisse expect the core CPI inflation to decline to 0.3% MoM in May, a welcome step lower after five consecutive months of registering 0.4% MoM. The YoY reading is likely to decline to 5.2%. Headline inflation is likely to decline to 0.1% MoM.

The effect of a weak USD Index can also be seen in US Treasury yields. The yields offered on 10-year US Treasury bonds have dropped to near 3.72%.

Meanwhile, the Canadian Dollar is showing resilience as investors are hoping that the Bank of Canada (BoC) will raise interest rates again to tighten its grip over stubborn inflation. Recent Canadian Employment data remained weak and posted a higher Unemployment Rate than expected after a few months. The street believes that a one-time weakness in the Employment numbers is insufficient to force BoC Governor Tiff Macklem to turn neutral again.

On the oil front, oil prices were heavily sold as Eurozone has joined China and is expected to show poor demand ahead due to deepening fears of recession. It is worth noting that Canada is the leading exporter of oil to the United States and lower oil prices would impact the Canadian Dollar.