USD/CAD retreats to 1.3420 area on broad USD weakness

• USD/CAD reversed its direction after climbing higher toward 1.3500.
• US Dollar Index slumps to fresh multi-month lows below 96.30.
• Crude oil continues to trade in negative territory, keeping CAD's gains limited.

The USD/CAD pair climbed to a daily high of 1.3488 during the European trading hours but reversed its direction in the second half of the day. As of writing, the pair was trading at 1.3419, still gaining 0.3% on a daily basis.

Earlier in the day, the selling pressure surrounding crude oil prices weighed on the commodity-related loonie. Revived oversupply concerns in the oil market caused the barrel of West Texas Intermediate (WTI) to drop toward $37 on Tuesday. Although the WTI staged a rebound in the early American session, it remains in the negative territory near $38, helping USD/CAD limit its losses.

USD remains on the back foot ahead of FOMC policy announcements

On the other hand, the greenback continues to weaken against its rivals. In the absence of significant macroeconomic data releases, the sharp drop witnessed in the US Treasury bond yields seems to be hurting the USD. The US Dollar Index, which rose toward 97.00 earlier in the day, was last seen losing 0.5% at 96.23, the lowest level in nearly three months.

The only data from the US showed that the IBD/TIPP Economic Optimism Index fell to its worst level since September 2016 at 47 but was largely ignored by the market participants.

On Wednesday, the FOMC's policy announcements will be the highlight of the week. Previewing this event, "we don't expect any major new policy announcements, including on forward guidance for the funds rate or QE," said TD Securities analysts. "But the tone will almost certainly remain quite dovish, with no let-up in easing through balance sheet expansion."

Technical levels to watch for