Canadian Dollar: Uptrend resumes with fair value focus against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note that the Canadian Dollar (CAD) is trading close to its fundamental equilibrium, with USD/CAD hovering near fair value around 1.38. They highlight that recent US Dollar (USD) gains have stalled, reinforcing a broader downtrend from mid-year peaks, while technical resistance in the low/mid 1.39s and support near 1.37 guide near-term trading expectations.

CAD trades near fair value

"The CAD is shrugging off heightened trade tensions with the US. President Trump has taken aim at Bombardier jets and the CAD in recent days though it's not clear what, if any, action will result."

"The president suggested a boycott, or perhaps a ban, on Bombardier jets in one social media post and earlier complained about the “unacceptable” CAD “imbalance” with the US in another."

"Given the Treasury’s recent attentiveness to the JPY, the focus on the CAD now perhaps indicates that the administration’s mercantilist policy focus is creeping towards more traditional levers— exchange rates."

"By our estimation, the CAD is currently trading close to its fundamental equilibrium. Spot dipped briefly below 1.38 in early Asian trade before rebounding slightly but the overnight low effectively equates to our fair value estimate currently of 1.3768, the lowest since early June. "

"Neutral/bearish—The USD has rebounded handily from the intraday low below 1.38, setting a bullish “hammer” signal on the intraday chart. That may provide some short-term relief for the USD."

"But more broadly, price action last week suggests that the USD rebound from the August 21 low (1.3733) stalled and reversed Wednesday. That sets firm resistance in the low/mid 1.39 zone and suggests the USD downtrend from the mid-year peak is resuming."

"USD-bearish trend momentum was close to stalling last week but USD losses have reinvigorated bearish oscillator signals, likely meaning that moderate USD gains (through the mid/upper 1.38s) will start to draw selling interest. USD support is 1.3715/35 ahead of the decline back to the 1.3500/50 region."

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