Canadian Dollar: Sentiment improves as risks fade against US Dollar – Scotiabank

FXStreet Insights Team FXStreet

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) is flat on Thursday but modestly firmer versus the US Dollar (USD) this week, making it a mild outperformer. They argue much bad news is already priced into CAD and that short-term USD/CAD risk reversals and improving Canadian data support a more constructive near-term view as front-end spreads stabilize.

Overbought Dollar faces firm resistance

"The CAD is all but flat on the day but retains a modestly firmer tone on the USD overall through the week so far, leaving it as a modest outperformer since Monday."

"The shift lower in short-term USDCAD risk reversals reflects a general sentiment shift against the USD but we also note some recent improvement in relative economic reports (reflecting slightly better than forecast, but still soft, Canadian data) which has tilted the US/Canada surprise index spread lower from high seen in early June."

"That should bolster a somewhat more constructive view of the CAD in the short run at least as front-end spreads stabilize and perhaps retreat. We continue to think that a lot of bad news is already factored into the CAD at current pricing, leaving little or no room for additional losses."

"Neutral—The CAD’s technical condition is little changed overall. The USD remains extremely overbought and we are more confident that the 1.4250/00 range should continue to offer firm resistance to a USD advance."

"A break under support at 1.4150 would be a bearish signal and prompt spot to test important support at 1.4075/80."

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

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