USD/CAD firms as BoC delivers 25 bps cut, Fed decision in focus

• USD/CAD snaps a two-day losing streak as the Canadian Dollar weakens following the BoC interest rate decision.
• The Bank of Canada cuts benchmark rate by 25 bps to 2.50%, citing weaker economy and softer inflation pressures.
• Traders turn attention to the Fed's monetary policy decision at 18:00 GMT

The Canadian Dollar (CAD) trades on the back foot against the US Dollar (USD) on Wednesday after the Bank of Canada (BoC) cut its benchmark rate by 25-basis-points (bps) to 2.50%, as expected. At the time of writing, USD/CAD is trading around 1.3757 during the American session, snapping a two-day losing streak.

In its Monetary Policy Statement, the BoC said that three key developments had shifted the balance of risks since July. The labour market has softened further, underlying inflation pressures have diminished, and Canada's removal of most retaliatory tariffs has reduced upside inflation risks. Policymakers noted that Gross Domestic Product (GDP) declined by 1.6% in the second quarter, exports to the United States (US) fell sharply, and uncertainty surrounding US trade policy has weighed heavily on business investment.

BoC Governor Tiff Macklem underlined the reasoning behind the move, saying there was a clear consensus on the Governing Council to cut rates and that the reduction was appropriate given a weaker economy and reduced inflation risks. He added that the Bank would remain data-dependent and closely monitor how trade disruptions, labour market slack, and inflation expectations evolve.

A notable change in today's statement was the removal of explicit forward guidance on further rate cuts. While the Governing Council left the door open to additional easing if conditions deteriorate, the shift underscores a more data-dependent stance rather than a preset path of cuts.

Meanwhile, a steady US Dollar (USD) is adding some pressure on the Loonie as traders await the Federal Reserve's (Fed) monetary policy decision later on Wednesday at 18:00 GMT. Markets are fully pricing in a 25 bps cut, but the focus will be on Chair Jerome Powell's forward guidance and the updated dot plot to gauge the pace of the easing cycle.