USD/CAD slumps further as BoC leaves interest rates steady at 2.75%

• USD/CAD declines further below 1.3900 as the BoC keeps interest rates at 2.75%, as expected.
• BoC Macklem warned that Trump's tariff policies could impact on business investment in Canada.
• Investors await the Fed Powell's speech for fresh guidance on the monetary policy outlook.

The USD/CAD pair extends its downside below 1.3900 during North American trading hours on Wednesday. The Loonie pair weakens further as the Bank of Canada (BoC) leaves its borrowing rates at 2.75%, as expected. This is the first interest rate meeting since June when the central bank has not reduced interest rates. Till now, the BoC has cut its borrowing rates by 225 basis points (bps).

The BoC has shifted its stance from "dovish" to "hold" as officials seek clarity on how the trade policy by United States (US) President Donald Trump will shape the Canadian economic outlook. "We will proceed carefully and be less forward-looking than usual until the situation becomes clearer," BoC Governor Tiff Macklem said. He warned that the available data is increasingly pointing to a "considerable slowing in business investment and household spending" in the face of reciprocal tariffs by US President Trump.

Earlier in the day, the USD/CAD pair was already weak as the US Dollar (USD) has retreated after a short-lived recovery move on Tuesday. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, slumps to near 99.50.

More downside in the US Dollar looks likely amid fears that the US-China trade war could lead to the economy to a recession. US businesses lack ability to increase their manufacturing facility that could produce similar amount of goods imported from China. Such a scenario leads to supply issues and result in a slowdown in business activity.

The US-China trade war brewed after Beijing announced counter-tariffs on reciprocal tariffs imposed by Donald Trump on the so-called "Liberation Day".

Meanwhile, investors await Federal Reserve (Fed) Chair Jerome Powell's speech at 17:30 GMT for fresh interest rate guidance.