07:30 AM EDT, 09/04/2024 (MT Newswires) -- The Bank of Canada is set to deliver its third successive quarter-point rate cut on Wednesday at 9:45 a.m. ET, said Societe Generale.

The Canadian economy expanded by 2.1% seasonally adjusted annual rate (SAAR) in Q2, but inflation eased to 2.5% y/y in July and the unemployment rate has climbed to 6.4%, noted the bank. The labor market has loosened, placing downward pressure on inflation.

A policy rate of 4.25% widens the gap with the fed funds rate to 125bp (upper end of the target range) and is a roadblock for sustained Canadian dollar (CAD or loonie) appreciation, stated SocGen. USD/CAD returned below 1.3550 after briefly topping 1.3900 amid the carry chaos of early August.

A hawkish cut -- such as guidance for pause -- could invite short covering and guide the loonie below 1.35, conditional on risk sentiment recovering, added the bank. The key technical levels to watch on the upside for the pair are 1.3590/1.3620.