USD/CAD holds losses below 1.3950 ahead of policy decisions from Fed, BoC

• USD/CAD depreciates as the US Dollar struggles due to the increased likelihood of a 25-basis-point rate cut by the Fed.
• Traders will closely monitor Fed Chair Jerome Powell for any indications about the pace of future monetary easing.
• The BoC is also expected to deliver a 25-basis-point rate cut later on Wednesday.

USD/CAD extends its losses for the third successive day, trading around 1.3940 during the Asian hours on Wednesday. The pair depreciates as the US Dollar (USD) remains subdued ahead of the US Federal Reserve (Fed) policy decision due later in the day.

The Fed is widely expected to lower interest rates by another quarter point, bringing the benchmark rate to 3.75-4.00%, at its October meeting. The CME FedWatch Tool indicates that markets are now pricing in a 25-basis-point Fed rate cut in October and a 91% possibility of another reduction in December.

Traders will be watching for any signals from Fed Chair Jerome Powell regarding the pace of future easing, as markets have already priced in another rate cut in December. The October CNBC Fed Survey also indicates that the Fed could implement additional rate reductions over the next two meetings.

The US Dollar received support from the optimism over the upcoming meeting between US President Donald Trump and Chinese President Xi Jinping, due on Thursday. The Greenback may further draw support if the two leaders finalize a framework that could pause higher US tariffs and China's rare earth export controls.

The Bank of Canada (BoC) is also expected to implement a 25-basis-point rate cut later on Wednesday. However, Canada's relative rate outlook remains more favorable, as the 2.25% policy rate still provides positive real yields against a 2.4% headline CPI. Analysts believe October's cut will likely mark the end of the BoC's easing cycle, with policymakers expected to adopt a neutral-to-hawkish tone amid moderate inflation pressures and a higher unemployment rate.