Canadian Dollar: Consolidation against US Dollar with limited gains – Scotiabank

FXStreet Insights Team FXStreet

Scotiabank strategists Shaun Osborne and Eric Theoret describe USD/CAD around 1.4215 as consolidating, with the Canadian Dollar retaining a soft undertone despite narrower US–Canada front-end spreads. They note United States-Mexico-Canada Agreement (USMCA) non-renewal prolongs trade uncertainty, while the Bank of Canada's (BoC) Q2 Business Outlook Survey may reflect this. CAD is seen as fundamentally cheap, but its undervaluation versus equilibrium has narrowed, implying limited upside potential.

CAD soft as trade risks linger

"The CAD retains a soft undertone. While front-end US/Canada spreads have narrowed over the past week, the CAD has been unable to pick up any ground."

"Confirmation that the US would not renew the USMCA agreement was perhaps no great surprise and while there is still room for trade talks to progress, the outcome means a prolonged period of uncertainty for Canadian and Mexican exporters."

"The BoC’s Q2 Business Outlook Survey this morning is likely to reflect that uncertainty to some extent at least. The CAD continues to look fundamentally cheap but the undervaluation relative to our equilibrium estimate (1.4141 this morning) has narrowed steadily over the past month which points to limited upside potential for the CAD."

"But there is also the possibility that the sustained USD rally over the past six weeks is merely pausing ahead of another push higher. The 1.4250/00 range should continue to offer some resistance to a USD advance for now. Support is 1.4150 and 1.4075/80."

"Neutral—USD/CAD price action is consolidating. There are some negative signs from short-term price action and the USD remains extremely overbought on the daily RSI oscillator."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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