USD/CAD maintains position above 1.3650 as traders adopt caution ahead of Fed decision

• USD/CAD holds losses as the US Dollar struggles ahead of the Fed's policy decision.
• The US Fed is widely expected to keep interest rates unchanged at 4.5% on Wednesday.
• Canadian PM Carney and Trump had agreed to work toward finalizing a new economic and security deal within 30 days.

USD/CAD edges lower after losing over 0.5% in the previous session, trading around 1.3660 during the Asian hours on Wednesday. The pair holds losses as the US Dollar (USD) loses ground ahead of the US Federal Reserve's (Fed) interest rate decision due later in the day.

Traders expect the Fed to keep the interest rate unchanged at the June meeting, with a nearly 80% probability of a Fed rate cut each in September and October, per Reuters. Moreover, the Federal Open Market Committee's (FOMC) statement regarding monetary policy will be observed to gain forward guidance amid persistent tariff uncertainty and rising geopolitical tensions.

On the data front, US Retail Sales fell by 0.9% in May, worse than the expected 0.7% decline and April's 0.1% decrease (revised from +0.1%). Meanwhile, Industrial Production also declined by 0.2%, against the 0.1% increase, swinging from the previous 0.1% growth. Market participants will likely gauge Initial Jobless Claims for the last week, Housing Starts, and Building Permits on Wednesday.

However, the USD/CAD pair received support as the US Dollar appreciated due to increased safe-haven demand amid rising geopolitical tensions in the Middle East. Israel is likely to escalate its attacks on Iran, while the United States (US) is considering expanding its role in the conflict. On Tuesday, US President Donald Trump stated that he wants a permanent end to Iran's route to nuclear weapons after his early departure from the G-7 meeting in Canada.

Canadian Prime Minister Mark Carney and President Donald Trump had met on the sidelines of a G7 summit in Alberta. Carney surprisingly stated that he and President Trump agreed that their two nations should try to wrap up a new economic and security deal within 30 days. However, a few hours earlier, Canadian officials noted that both countries still had plenty of work before they could sign a trade agreement.