USD/CAD: Push downwards to potentially extend to test support at 1.3750 - Scotiabank

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.

CAD steadies after BoC policy decision

"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."