It's understood that the new deal is virtually agreed and as a result it's only a matter of time before he commits his future to the club.
Cunha has been tipped for a move away from the club in this January transfer window, with Manchester United linked.
This link was heightened when the forward appeared to like a social media post that suggested he would move to Old Trafford.
Speculation has risen about a potential switch to Tottenham too, with Jason Cundy suggesting in November that he's bound to leave for bigger and better things.
Cundy told talkSPORT: "This boy has got so much quality.
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"Ball at his feet, he travels at pace, there ain't many players that can travel with the same pace with the ball at their feet than they can in a sprint.
"He will end up leaving Wolves, he's going to end up being too good for them, he's a top, top player."
However that speculation will now be quashed for the foreseeable.
Cunha has scored 10 goals in 19 Premier League appearances so far this season while also providing four assists.
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The striker is Wolves' key man and his performances have led to his side rising out of the relegation zone.
Signing him to a new long-term contract will be a major boost for the club and new manager Vitor Pereira.
Wolves will be desperate to keep hold of their key players with the club sitting perilously close to the relegation zone at the midway point in the season.
But with Cunha set to extend his stay, fans will be hopeful that he can inspire the team to top flight survival.