Canadian institutional investors cut USD exposure – Scotiabank

The Canadian Dollar (CAD) has picked up a little ground against the weaker USD on the session but gains are minimal and the CAD is underperforming its peers quite obviously, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

CAD marginally higher

"On balance, the weaker USD, positive risk appetite and narrower US/Canada spreads should help give the CAD a little more lift and (ignoring steady to softer commodities), help spot close the gap on its estimated fair value (1.3634). OTPP said yesterday that it had reduced its exposure to the USD by 56% in H1 this year. Net assets of USD40.2bn were the lowest since 2021 for Teachers, who noted that it had adjusted expectations for the USD 'not only for this year but for the next several years'."

"La Caisse also said that its allocation to US assets was being reduced a little when it revealed its H1 performance yesterday. Than BoC releases the summary of its policy deliberations from the July 30th meeting later today. Recall that the minutes for the early June policy meeting revealed that policymakers had debated a 25bps cut but opted for no change on account of resilient economic growth and “stickier than expected” inflation. Ahead of the July decision, data showed inflation remained very sticky while employment data reflected a couple of solid gains in full time jobs and still firm wage growth. Policymakers probably came to a similar conclusion to June at their most recent meeting."

"USD/CAD reversed bearishly from the intraday peak just above 1.38 yesterday and is leaning a little harder on short-term consolidation support at 1.3760 in early trade. The CAD needs to secure a clear break below this point to extend gains in the short run and retest USD support at 1.3720/30. A break below here targets a drop to the mid/upper 1.36s. Resistance is 1.3810/15."