CAD retains a firm undertone but ignores crude swings – Scotiabank

The Canadian Dollar (CAD) retains a firm undertone against a generally softer US Dollar (USD). The CAD’s performance since the outbreak of Israel/Iran hostilities last week is fairly middling among the major currencies, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Little scope for counter trend corrections

"The NOK and MXN are relative outperformers over that time frame but the CAD has not really benefitted from the jump in crude oil prices. Oil consumers (JPY) have underperformed somewhat but the situation reflects the rather limp relationship the CAD (and G10 FX) generally has with crude oil trends. The measured, rolling 1m correlation between the CAD and WTI is –17% (chart) and is worse over a shorter, rolling 10-day study (-38%)."

"Meaningful Iranian supply disruption or a situation which compromised tanker traffic in the region (Straits of Hormuz) could prompt a stronger, and perhaps more sustained rise in crude which might lift the CAD. But for now, the driver behind the CAD’s firmer trend is mainly that it’s not the USD. Progress on US/Canada trade at this week’s G7 meeting in Canada might give the CAD a further lift. For now, spot is trading right about where our fair value estimate says it should be (1.3588)."

"Spot is traded at a marginal new low for the move down this morning, just fractionally below Friday’s low. The broader trend lower in funds remains intact and deeply-entrenched on the charts. Trend momentum signals are aligned bearishly for the USD across intraday, daily and weekly studies—implying ongoing downside pressure on the USD and (typically) little scope for counter trend corrections. Sustained losses through weekly support in the mid-1.36s now imply scope for USD losses to extend to 1.34 (50% retracement of the 2021/2025 move up at 1.3403) shortly. Resistance is 1.3650/60 and 1.3730."