CAD up marginally into CPI – Scotiabank

The Canadian Dollar (CAD) is entering Tuesday’s NA session with a modest gain as it seeks to extend Monday’s rally, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

Spreads show signs of stabilization into BoC

"Fundamentals appear to be offering some stabilization and a possible recovery as the 2Y US-Canada yield spread rolls over following its notable widening from late August. CAD/spread correlations are elevated, highlighting the importance of fundamentals in the current environment."

"Tuesday’s domestic release calendar offers considerable risk as we look to the 8:30am ET CPI release, with expectations of a slight rise in headline (to 2.0% y/y from 1.7% y/y) as core measures are expected unchanged (core median at 3.1% y/y and core trim at 3.0% y/y). The risk CPI risk is heightened by Wednesday’s BoC, where markets are currently pricing 23bpts of easing."

"Our USD/CAD FV estimate is currently at 1.3608, suggesting a continued discount in spot

relative to its fundamentals. Monday’s decline was notable and offered a third short-term top since late July, generating a head & shoulders formation that offers a measured move target in the mid-1.35s. The RSI has drifted into bearish territory, and the latest push lower has broken the 50 day MA (1.3771) trend level offering further downside back toward the mid-June lows. We look to a near-term range bound between 1.3700 and 1.3800."