Canadian Dollar: Loonie benefits from technical break – Societe Generale

Societe Generale analysts describe USD/CAD pulling back after failing above 1.4130, with interim resistance near 1.4250 capping gains. They see next supports at the 50-day moving average around 1.3970 and 1.3850, and note an overdue breakdown below 1.41 that could extend on short-covering, barring a surprise from United States (US) Producer Price Index (PPI).

Breakdown tests key supports

"In Canada, the BoC is widely anticipated to leave the policy rate unchanged at 2.25%, extending its pause to a sixth consecutive meeting. The bank is unlikely to make major revisions to the inflation projections unless the view has evolved on spare capacity and the economy operating in excess supply."

"Inflation was previously expected to hover around 3% in the near term before easing gradually towards 2%. Core inflation was 2.0% in May and an increase in April GDP by 0.5% m/m in April guided the economy out of technical recession. "

"Labour market conditions have improved of late, reflected in the decline of the unemployment rate by 0.4pp since April to 6.5% in June, the lower end of the BoC forecast range. Market pricing suggests a 25bp hike before year-end cannot be dismissed. "

"USD/CAD has embarked on a pullback after encountering interim resistance around 1.4250 last month. The pair failed to hold above the upper boundary of its previous broad consolidation at 1.4130, highlighting a lack of steady upward momentum. The next potential support levels are located at the 50-DMA near 1.3970 and at 1.3850. A break above the highs reached earlier this week at 1.4130/1.4175 would be crucial to signal a resumption of the uptrend."

"The (overdue) breakdown in USD/CAD yesterday below 1.41 could have room to run on short covering unless US PPI springs a surprise. Next support is located around 1.3970 (50-DMA), resistance is near 1.4130/1.4175."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)