CAD vulnerable to double blow of wider spreads and lower oil prices – Scotiabank

The CAD is entering Thursday’s NA session flat vs. the USD but trading somewhat defensively, reflecting the burden of lower oil prices amid the prospect of a possible US/Iran deal, Scotiabank's Chief FX Strategist Shaun Osborne notes.

RSI remains in bullish territory

"Wider yield spreads have been a recent headwind for the CAD, and their impact had been somewhat softened by the recovery in crude over the past week or so. Lower oil prices and wider yield spreads are dealing a double blow for the currency and leaving it vulnerable to further near-term weakness."

"Our FV estimate for USD/CAD has climbed in tandem with spot, and it is currently at 1.3892. Domestically, CAD risk lies with the release of housing starts (8:15am ET), manufacturing sales (8:30am ET), and existing home sales (9:00am ET), however the broader tone is likely to remain dominant in light of risks related to Powell and the US data calendar. The BoC calendar appears to have added a speaking engagement for Gov. Macklem, next Thursday in Banff, on the sidelines of the G7 meeting of finance ministers and central bank governors."

"USD/CAD appeared to have put in a solid near-term (double) top earlier this week as we had noted clear resistance above 1.4000. USD/CAD’s double top observed on Monday and Tuesday reached its measured move target on Wednesday and the subsequent support has increased the prospect of a renewed push above 1.4000. Zooming out, we continue to highlight the importance of the midpoint of the September/February range around 1.4100. The RSI remains in bullish territory, hovering just above 50. Near-term support has been clearly defined around 1.3920."