USD/CAD: Rally shows exhaustion near 1.39 – Scotiabank

FXStreet Insights Team FXStreet

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) is only slightly firmer versus the Dollar (USD) despite broad USD weakness, but sees scope for a meaningful CAD recovery after a 1.4% Q1 decline. They stress CAD undervaluation versus fair value at 1.3495 in USD/CAD and highlight a short‑term range around 1.3850–1.3950 as momentum indicators roll over.

CAD undervalued as range forms

"The CAD is entering Wednesday’s NA session with a fractional 0.1% gain vs. the USD, lagging its G10 peers in an environment of broad-based USD weakness."

"Broader developments are dominating, opening up the potential for a meaningful recovery in the CAD following a disappointing 1.4% decline in Q1. Risk reversals are confirming the shift in broader market sentiment and fading the premium for protection against CAD weakness (USD/CAD upside)."

"We continue to highlight the CAD’s meaningful undervaluation to our assessment of its fundamental equilibrium estimate. Our FV for USD/CAD is currently at 1.3495, revealing a significant divergence to spot."

"USD/CAD rally is showing signs of exhaustion with momentum pulling back from overbought levels as the RSI drifts back below 70. Tuesday’s candle chart reveals a bearish reversal signal—a ‘shooting star’ doji—at levels corresponding to the 61.8% retracement of the Sept 2024-Feb 2025 rally at 1.3944."

"The drift below 1.3900 is important, and we see limited support ahead of 1.3850. We look to a near-term range bound between 1.3850 and 1.3950."

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

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