Canadian Dollar: Underperformance persists on wider spreads – Scotiabank

FXStreet Insights Team FXStreet

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that USD/CAD remains elevated near 1.40 after the FOMC, with the Canadian Dollar (CAD) underperforming peers as the Fed/BoC rate differential returns to 175bps. Their fair value model suggests modest USD overvaluation around 1.3894, but limited prospects for narrowing spreads imply CAD may struggle to recover, while technicals point to potential USD gains above 1.40 toward 1.4050/1.4125.

Rate differentials weigh on Canadian Dollar

"The CAD slide following the FOMC Wednesday has steadied in overnight trade. But the CAD has failed to improve, unlike most of its major currency peers, leaving it a clear underperformer on the session."

"With the Fed/BoC policy rate differential back to 175bps, where it spent much of last year, wider front-end spreads account for the CAD’s softness and underperformance. Our fair value model indicates an equilibrium exchange rate of 1.3894, indicating that there is a degree of USD overvaluation in current spot rates but, with little prospect of that gap narrowing anytime soon, the CAD may find it hard to recover meaningfully for now."

"Bullish—USD gains are holding just under 1.40, with the 50% retracement resistance of the June/August slide in the USD at 1.3990 holding gains for now. "

"Trend momentum has shifted materially this week, however, and a sustained push through 1.40 would support the outlook for additional gains towards 1.4050/1.4125. upport has shifted higher to 1.3940/50."

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

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FXStreet Insights Team

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The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

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