USD/CAD extends losses as weak US Consumer Confidence weighs, BoC and Fed eyed

• USD/CAD extends losses for a second day as the Greenback weakens after soft US Consumer Confidence data.
• US Consumer Confidence falls to 94.6 in October from 95.6 in September.
• BoC and Fed monetary policy decisions in focus; both central banks are expected to cut rates by 25 basis points on Wednesday.

The Canadian Dollar (CAD) strengthens against the US Dollar (USD) on Tuesday as the Greenback weakens following the latest US Consumer Confidence report. At the time of writing, USD/CAD is trading around 1.3944, extending losses for the second consecutive day and down roughly 0.30%.

Data from the Conference Board showed that US Consumer Confidence fell in October. The Consumer Confidence Index slipped to 94.6 from a revised 95.6 in September, marking the second straight monthly decline. While the Present Situation Index edged up to 129.3, suggesting current conditions remain stable, the Expectations Index dropped to 71.5, remaining below the 80-point recession threshold for the ninth consecutive month. Meanwhile, inflation expectations for the year ahead rose to 5.9%.

Following the data, the US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, eased to around 98.63, retreating from an intraday high of 98.95.

Focus now shifts to Wednesday's twin risk events as the Bank of Canada (BoC) and the Federal Reserve (Fed) prepare to announce their interest rate decisions. Markets widely expect the BoC to deliver another 25-basis-point rate cut, lowering its policy rate to 2.25% in what could mark the end of its current easing cycle. According to Rabobank, 20 out of 27 economists surveyed by Bloomberg anticipate the move, while OIS pricing assigns an 88% probability of a cut.

The decision comes amid a sharp slowdown in the Canadian economy, which contracted by 1.6% in Q2, the steepest since 2020, and a persistent Unemployment Rate of 7.1%. Although inflation has picked up modestly with the headline Consumer Price Index (CPI) at 2.4%, policymakers are balancing elevated price pressure against weakening labor market conditions and trade disruptions stemming from US tariffs.

Meanwhile, attention will also turn to the Fed with markets almost certain the central bank will deliver another 25-basis-point (bps) interest rate cut on Wednesday, following September's so-called "risk-management" move. Expectations for further easing strengthened after softer-than-expected US inflation data last week, reinforcing bets that the Fed will lean dovish.

According to the CME FedWatch Tool, traders assign a 96.7% probability of aprobability of a quarter-point rate cut. In September, Fed Chair Jerome Powell said that "downside risks to employment appear to have risen," highlighting growing concern about labor market weakness even as inflation remains above target.