• USD/CAD drifts lower for the second straight day and is pressured by a combination of actors.
• An uptick in Oil prices underpins the Loonie and exerts pressure amid a modest USD weakness.
• Investors now look to the Canadian CPI and the US macro data for some meaningful impetus.

The USD/CAD pair now seems to have entered a bearish consolidation phase and is seen oscillating in a narrow band around the 1.3120-1.3125 area, just above its lowest level since September 2022 touched this Tuesday.

A combination of factors lends some support to Crude Oil prices, which, in turn, underpins the commodity-linked Loonie and drags the USD/CAD pair lower for the second straight day amid the prevalent US Dollar (USD) selling bias. Political instability in Russia raised concerns about possible supply disruptions. Furthermore, China's Premier Li Qiang said that domestic economic growth is expected to reach the annual projected target of around 5%. This, in turn, lifts hopes for a pickup in fuel demand ahead of the summer driving season in the US and acts as a tailwind for the black liquid.

The latest optimism, meanwhile, is evident from a modest recovery in the global risk sentiment and a generally positive tone around the equity markets. The risk-on flow is seen denting the Greenback's relative safe-haven status and exerting additional downward pressure on the USD/CAD pair. That said, the Federal Reserve's (Fed) hawkish outlook helps limit losses for the USD. Traders also seem reluctant to place aggressive bets and prefer to wait for the release of the latest Canadian consumer inflation figures, due later during the North American session, for a fresh impetus.

Consensus estimates point to a sharp deceleration in the Canadian headline CPI, from a 4.4% YoY rate to 3.4% in May. Moreover, the Bank of Canada's (BoC) Core CPI is projected to ease to 3.9% from 4.1% in April. The markets, however, have been pricing in a greater chance of another 25 bps BoC rate hike in July. Hence, a larger drop in headline CPI is unlikely to diminish the odds for the anticipated lift-off, though might still infuse some volatility around the USD/CAD pair. Apart from this, traders will take cues from a slew of important US macro data to grab short-term opportunities.

Tuesday's US economic docket features Durable Goods Orders, the Conference Board's Consumer Confidence Index, New Home Sales and Richmond Manufacturing Index, which might influence the USD. Apart from this,  Oil price dynamics will be looked up for some meaningful impetus to the USD/CAD pair. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside. Hence, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly