The Bank of Canada (BoC) duly delivered the 50bps cut that the markets were more or less expecting yesterday. The CAD wobbled for a bit but held its ground around the mid/ upper 1.38s, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
“Messaging that indicated the easing process will continue while inflation risks more balanced now. As such, terminal rate pricing just under 3% for the middle of next year is little changed, helping steady the CAD. Still, the door was not closed on further 1/2 point cuts and the unusually wide policy spread over the Fed that is extending into wide swap and cash bond spreads persists.
“The CAD has picked up a little more support through the overnight session but prospects for a significant rebound are limited with rate differentials as wide as they are. Spot’s mildly negative price reaction to yesterday’s minor push above 1.3850 resistance has prompted a more neutral, short-term tone in spot today.”
“USD/CAD remains deeply overbought on the intraday and daily studies which may slow USD gains in the short run and could prompt a modest pullback (at least) in the recent bull trend. Support is 1.3800/10, with a push below here potentially extending to test support at 1.3750.”