USD/CAD declines to near 1.3900 ahead of BoC's monetary policy decision

• USD/CAD slumps to near 1.3900 due to a significant weakness in the US Dollar.
• Market participants start doubting the USD's credibility due to Trump's abrupt tariff announcements.
• Investors await the BoC's interest rate decision and Fed Powell's speech.

The USD/CAD pair falls sharply to near 1.3900 in Wednesday's European session. The Loonie pair weakens as the US Dollar (USD) falls back after a short-recovery move on Tuesday. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, slumps to near 99.40.

Investors continue to dump the US Dollar amid fears that the escalating tariff war between the United States (US) and China would result in a stagflation. The incapability of the US to meet lost imports from China in terms of quantity and prices in a short span of time could lead to an increase in inflationary pressures and slow down the economic growth.

Meanwhile, diminishing credibility of the US Dollar due to erratic tariff announcements by US President Donald Trump has also weighed on the USD Index.

Going forward, the major trigger for the US Dollar will be Federal Reserve (Fed) Chair Jerome Powell's speech, which is scheduled at 17:30 GMT.

In the neighbouring nation, investors will focus on the Bank of Canada's (BoC) monetary policy decision, which will be announced at 13:45 GMT. The BoC is expected to leave interest rates at their current levels of 2.75%. This would be the first meeting since June in which the central bank will keep borrowing rates steady. Till now, the BoC has reduced its key borrowing rates by 225 basis points (bps).

Investors will also pay close attention on Boc Governor Tiff Macklem's press conference to get cues about how Trump's international policy will shape the monetary policy and the economic outlook.