USD/CAD holds gains above 1.3950 despite rising odds of Fed rate cuts

• USD/CAD climbs as the US Dollar strengthens, driven by a rise in Consumer Inflation Expectations to 3.4% in September.
• The CME FedWatch Tool indicates pricing in nearly a 95% odds of a 25-basis-point Fed rate cut in October.
• The CAD may gain ground amid rising crude Oil prices.

USD/CAD continues to gain ground for the second successive session, trading around 1.3960 during the Asian hours on Wednesday. The pair appreciates as the US Dollar (USD) gains ground, as United States (US) Consumer Inflation Expectations for the year ahead rose to 3.4% in September, the highest in five months, compared to 3.2% in August.

However, the US Dollar may face challenges amid prevailing bearish sentiment surrounding the US Federal Reserve (Fed) policy stance. The CME FedWatch Tool suggests that markets are now pricing in nearly a 95% chance of a 25-basis-point Fed rate cut in October and an 83% possibility of another reduction in December.

Federal Reserve (Fed) Board of Governors member Stephen Miran expressed his belief on Tuesday that inflation itself is simply a cause of "population increases". Monetary policy needs to ease to get ahead of the shift down in the neutral rate, Miran added.

Minneapolis Fed President Neel Kashkari struck a more reserved tone than some of his Fed counterparts on Tuesday, cautioning that it's still too soon to be able to tell if tariff-led inflation will be "sticky" or not. However, Kashkari noted that he's particularly bullish on the labor market and is expecting a return to form for American job creation, which has sputtered recently.

The upside of the USD/CAD pair could be limited as the commodity-linked CAD receives support from higher Oil prices. It is worth noting that Canada is the largest crude exporter to the United States.

West Texas Intermediate (WTI) Oil price continues to gain ground for the fourth successive session, trading around $62.00 per barrel at the time of writing. Crude Oil prices receive support from a more modest OPEC+ output hike. The Oil group recently decided to limit its production increase, opting for the smallest rise among the options considered.