CAD steadier but underperforms versus majors – Scotiabank

The Canadian Dollar (CAD) has picked up a little ground in quiet trade to move back through the low 1.39s but its broader underperformance is extending and the chances of a significant rebound on its own merits look limited at this point, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Seasonal risks are bearish

"Tomorrow’s Canadian bank holiday will likely keep activity on the quiet side in the early part of the week before the focus shifts to the US jobs report. We highlighted the seasonal headwinds facing the CAD as we move into Q4 in Friday’s Weekly note and it bears repeating that the CAD typically underperforms though the latter part of the year."

"The recent exception was 2023, however, when soft US data late in the year prompted markets to start thinking about easier Fed policy (prematurely, as it turned out), driving the USD generally lower. There are some signs from the shortterm charts that USD gains peaked and reversed late last week but drop in funds from the high has been minimal, with losses steadying around the 1.3925 (August high) point that served as minor resistance on the way up."

"The CAD needs to recover a little more ground and push back through 1.3880 I think to show some stronger technical chops at this point—if only from a short-term point of view. If the USD holds in the low 1.39s, spot risks remain geared to a retest of the 1.40 area."