USD/CAD has recently broken the trend line drawn since February resulting in an extended pullback, Société Generale market analysts note.

A hawkish cut may invite short covering

“USD/CAD has recently broken the trend line drawn since February resulting in an extended pullback. It has established below the 200-DMA which denotes lack of steady upward momentum.”

“The MA near 1.3590/1.3620 must be overcome to confirm a short-term rebound. Holding below this hurdle, there could be risk of continuation in decline towards next potential supports located near March low of 1.3420 and 1.3350, the 76.4% retracement from December.”

The Bank of Canada is set to deliver its third successive quarter-point rate cut today. USD/CAD returned below 1.3550 after briefly topping 1.3900 amid the carry chaos of early August. A hawkish cut could invite short covering and guide the Loonie below 1.35, conditional on risk sentiment recovering.