The fourth-seeded Raonic will seek his third championship of the young season after besting unseeded German Benjamin Becker 6-4, 6-4 on the indoor hard courts at The Racquet Club of Memphis.
The 21-year-old Raonic has claimed wins at Chennai and San Jose so far this year, racking up a 15-1 record in the process.
Melzer, meanwhile, served three aces in the decisive set to beat No. 3 seed Radek Stepanek in the day's other semifinal match.
The unseeded Melzer tallied eight aces en route to a 6-4, 3-6, 6-3 win and his second victory over a seeded opponent in two days.
Sunday's final will be the first meeting between the two players.