During Tuesday's Asian trading session, the USD/CAD pair edged slightly higher, with the exchange rate fluctuating around the 1.3720 level. Although the US dollar found some short-term support, market confidence in a sustained rebound remains limited, primarily constrained by multiple uncertainties.

The week's core focus is centered on the interest rate decisions from the Federal Reserve and the Bank of Canada, due on Wednesday. The market widely expects the Bank of Canada to hold its policy rate steady at 2.25% at its January meeting, as current inflation levels remain within the target range, reducing the urgency for immediate policy adjustments.

For the Federal Reserve, a similar hold is anticipated. However, compared to the Bank of Canada, the Fed faces a more complex set of external uncertainties. The market continues to monitor US President Trump's comments on central bank independence, as well as the impending announcement of the next Fed Chair.

Trump stated last week that he would soon announce a replacement for Chair Powell, a remark that has prompted a market reassessment of future monetary policy direction. Speculation surrounding the next Fed Chair is weighing on the US dollar.

The prevailing market view is that the new Chair candidate may lean towards advocating for a faster and more aggressive path of interest rate cuts, which diminishes the medium-term appeal of the US dollar. Additionally, US fiscal risks also pose a drag on the dollar. Congress faces a January 30th funding deadline; failure to agree on a new funding bill risks a partial government shutdown.

Senate Democratic Leader Schumer has voiced opposition to a bill that includes funding for the Department of Homeland Security, further clouding the negotiation outlook. Historical experience shows that government shutdowns tend to weaken market confidence in dollar-denominated assets in the short term.

On the other hand, the Canadian dollar's movement is also constrained by external factors. Over the weekend, Trump threatened that the US could impose 100% tariffs on Canadian goods if Canada reaches a trade deal with Asian countries, reigniting market concerns over trade.

This potential risk caps the upside for the loonie and, to some extent, offsets the bearish factors affecting the US dollar itself.

From a daily chart perspective, USD/CAD overall remains in a pattern that is slightly bullish but lacks momentum. After rebounding from recent lows, the pair is currently trading in the mid-to-upper part of its previous range, but has yet to achieve a clear trend breakout.

Regarding moving average structure, the price is seesawing around the 20-day and 50-day moving averages. The flattening trajectory of the short-term averages indicates a lack of clear market direction. The 50-day moving average provides some support, while the 100-day moving average above continues to cap rallies, reflecting a relative balance between medium-term bullish and bearish forces.

In terms of momentum indicators, the 14-day Relative Strength Index (RSI) is hovering near 50, not entering clear overbought or oversold territory, suggesting the market is in a wait-and-see state with insufficient momentum for a strong trend. This characteristic aligns with the current highly uncertain fundamental environment.

Looking at key levels, the 1.3700 mark is the core area for short-term bullish-bearish contention, holding both psychological and technical significance. If the pair can firmly hold above this area and break above the 1.3760–1.3780 range, it could open the door for further gains towards the 1.3850 vicinity.

Conversely, if the dollar comes under pressure around the policy events and the pair breaks below 1.3680, it could trigger a technical correction, with support below eyed in the 1.3600–1.3620 zone. A breach of this area would gradually shift the daily structure to a weaker bias. Overall, USD/CAD maintains its range-bound characteristics on the daily chart, with the short-term direction highly dependent on guidance from the central bank decisions and policy signals.

Editor's View: Ahead of the Fed and Bank of Canada decisions, USD/CAD is in a highly sensitive state but lacks a directional breakout. The US dollar is hampered by concerns over policy independence, government shutdown risks, and personnel uncertainty, while the loonie struggles to strengthen comprehensively due to potential trade worries.

Judging from a combination of technical and fundamental factors, the exchange rate is more likely to maintain its range-bound movement in the short term, awaiting a directional cue following the policy events. If the Fed signals a dovish tilt while the Bank of Canada maintains a relatively steady stance, downside risks for USD/CAD may gradually emerge. Conversely, if risk sentiment deteriorates and pressures the Canadian dollar, the pair still retains potential for a temporary upward move.