USD/CAD holds steady above 1.3550 ahead of Canadian CPI, US Retail Sales data

• USD/CAD flat lines around 1.3585 in Monday’s early Asian session. 
• The US Fed is widely anticipated to cut interest rates on Wednesday, its first in four years. 
• The Canadian CPI inflation report is due later on Tuesday. 

The USD/CAD pair trades on a flat note near 1.3585 during the early Asian session on Tuesday. Further decline in the US Dollar (USD) ahead of the key US Federal Reserve (Fed) interest rate decision is likely to cap the upside for the pair. Later on Tuesday, investors will monitor the Canadian Consumer Price Index (CPI) and US Retail Sales for August for fresh impetus. 

The Fed will announce its interest rate decision on September 18, and it is widely expected to cut the federal funds rate by either 25 basis points (bps) or 50 bps. According to the CME FedWatch Tool, traders are now pricing in nearly 67% chance of a reduction of 50 bps, up from 50% on Friday. Meanwhile, the odds of a 25 bps rate cut stand at 33%. 

After the policy meeting, Fed officials will release new interest rate projections, known as the "dot plot,"  which might offer some hints about the US interest rate outlook for the remainder of this year and next. The expectation of larger rate cuts might exert some selling pressure on the Greenback in the near term. 

Canada's CPI inflation data for August will be released on Tuesday, which is expected to rise 2.2% from a year ago, down from a 2.4% annual gain in July. The forecasters also estimated an inflation increase of 0.1% on a month-over-month basis in August. Any signs of slowing inflation might trigger the Bank of Canada (BoC) to speed up cuts to its key lending rate if circumstances warrant. However, if inflation is stronger than expected, the Canadian central bank could slow the pace of rate cuts.