The Canadian Dollar (CAD) is on the defensive ahead of the Bank of Canada (BoC) policy decision, sliding to its lowest in three months against the US Dollar (USD). Oil has snapped 2%+ higher today but that will not alter CAD dynamics significantly, Scotiabank’s chief FX strategist Shaun Osborne notes.

The USD is heavily overbought on the intraday

“A quarter point cut from the BoC is more or less fully priced in at this point but the Bloomberg survey reflects a clear minority who favour a hold today. That seems unlikely based on the Bank’s track record. A hold today might also suggest that it was too quick off the mark in June with the first cut. The governor has sounded dovish and appears in a mood to ease.”

“Another cut is very likely to emerge today and the tone from the full suite of communications is likely to keep the door open to more cuts ahead. The CAD’s slide to 1.38 risks perhaps extending a little more but saving grace in the outlook at the moment is the IMM data reflecting an already heavily short CAD base exists in the market. Some profit-taking after the Bank decision might give the CAD a bit of a lift.”

There is no reason not to expect the USD’s steady advance from the 1.36 low reached on July 11th to extend. The USD has exceeded the June 11th high of 1.3790 so there is no clear impediment to the USD advancing to retest the April peak at 1.3846. The USD is heavily overbought on the intraday. Initial support sits at 1.3760, then 1.37.”