USD/CAD edges higher ahead of FOMC Minutes, with the interest rate outlook in focus

• USD/CAD heads toward moving average resistance ahead of FOMC Minutes.
• The US Dollar finds temporary support from rising Consumer Confidence and a hawkish Fed.
• The Loonie pair remains focused on the direction of the US Dollar, for now.

The Canadian Dollar (CAD) is trading modestly lower against the US Dollar (USD) on Wednesday, with investors awaiting the release of the Federal Open Market Committee (FOMC) Meeting Minutes at 18:00 GMT.

The Federal Reserve (Fed) has remained firm in its commitment to holding interest rates steady until inflation gets closer to its 2% target. As such, the minutes from the May meeting could shape expectations for the near-term path of monetary policy.

At the time of writing, USD/CAD is trading near 1.3823 with the 20-day Simple Moving Average (SMA) providing resistance at 1.3874.

Interest rate divergence fuels USD/CAD momentum ahead of Fed Minutes

On Tuesday, the US Dollar found renewed support after Consumer Confidence data showed a sharp jump to 98 in May, up from 85.7 in April. Easing tensions between the European Union (EU) and the US has also lent support to the Greenback and, together with hawkish comments from Fed officials, has reinforced the case for USD/CAD bulls.

Interest rate divergence remains a primary driver of the pair's strength. 

Recent Canadian data suggest that the Bank of Canada (BoC) may consider cutting rates in June. While headline inflation fell to 1.7% in April, core inflation--excluding volatile components like food and energy--rose to 3.15%, remaining above the BoC's target.

Markets are now pricing in a potential 25-basis-point rate cut from the Bank of Canada, which would bring the benchmark rate down from 2.75% to 2.50%. 

In contrast, the Fed is widely expected to keep rates on hold in June, with market pricing showing a 97.8% probability of maintaining the current 4.25%-4.50% range. 

The next rate cut is expected at the September meeting.

Any hawkish or dovish tone in Fed Minutes could shift sentiment further, especially ahead of Friday's release of the central bank's preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) index.