USD/CAD remains below 1.3850 due to rising odds of multiple Fed rate cuts

• USD/CAD depreciates as the US Dollar faces challenges amid rising odds of a Fed rate cut on Thursday.
• Morgan Stanley and Deutsche Bank expect three Fed rate cuts this year.
• Traders await Canada's Consumer Price Index release on Tuesday, followed by the BoC's policy decision on Wednesday.

USD/CAD inches lower after registering small gains in the previous session, trading around 1.3840 during the Asian hours on Monday. The pair faces challenges as the US Dollar (USD) struggles, as a weakening US labor market boosts the likelihood of the US Federal Reserve (Fed) delivering its first rate cut of the year on Thursday.

Traders expect the US Federal Reserve (Fed) to lower rates by 25 basis points at its September meeting, though there remains a slight chance of a 50-basis-point cut. Markets have also factored in continued easing through 2026 to help stave off a potential recession.

Morgan Stanley and Deutsche Bank now expect the US central bank to deliver three rate cuts this year, after recent data pointed to easing inflation pressures. In separate notes on Friday, the brokerages projected 25-basis-point reductions at each of the Fed's remaining meetings in September, October, and December, per Reuters.

Traders are also keeping their eyes on whether Stephen Miran will be sworn in as a Fed governor before the policy meeting. According to Reuters, citing the Senate schedule set by Republican leaders, the full Senate vote on his confirmation is scheduled for Monday evening.

Focus is on Canada's Consumer Price Index (CPI) release due on Tuesday, ahead of the Bank of Canada's (BoC) policy decision on Wednesday. Expectations for BoC easing have increased after data showed a loss of roughly 65,500 jobs in August and a rise in the unemployment rate to 7.1%.