Canadian Dollar: USD strength keeps CAD weakness in focus - Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note that the Canadian Dollar (CAD) is largely unchanged, with Governor Macklem’s comments leaving the Bank of Canada (BoC) outlook broadly consistent with the latest policy statement. The door to tighter policy remains open, and policymakers may be more sensitive to CAD weakness with inflation near 3%. Technicals point to further USD/CAD gains.

CAD steady as USDCAD tests resistance

"BoC Governor Macklem’s comments yesterday did not advance the interest rate debate to any degree. His remarks were broadly consistent with the tone of the latest policy statement which balanced trade tensions against sticky price pressures."

"The door to tighter policy remains open but we may have to wait for the October policy decision to get a clearer sense of the rate outlook. A lower CAD will add to inflation risk at the margin. CAD losses since early September have not been all that significant and the Bank generally views the FX pass through (to inflation) as lagging and limited."

"But policymakers may be a little more sensitive to the CAD trend with inflation stuck around 3% than if CPI was 2%. Meanwhile, President Trump’s apparent deal with Belarus to import potash is unlikely to go anywhere anytime soon simply because Belarus has no spare export capacity currently."

"Bullish—Clear USD progress through 1.3990 resistance, the 50% Fibonacci retracement of its June-August decline, keeps USD/CAD on track for 1.4050 and potentially 1.4125 in the short term (61.8% and 76.4% retracements respectively)."

"USD strength is supported by bullish intraday and daily trend oscillators. Initial USD support is located at 1.3900-1.3915."

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