Canadian Dollar: Consolidation near 1.42s against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that USD/CAD around 1.4269 shows signs of consolidation after a sharp Canadian Dollar (CAD) weakening since early September. Price action is closely tracking the 2-year US–Canada spread, with Oil offering some support to CAD. Their fair value estimate for USD/CAD stands below spot at 1.4191, while technicals point to stalled upside and key levels at 1.4400, 1.4100 and 1.4000.

Consolidation with stretched valuation

"Recent price action in the CAD is suggestive of consolidation and a reassessment of the nearterm path following an astonishing run of weakness from early September."

"The CAD’s movement is largely mirroring the 2Y US-Canada spread, suggesting that markets are tightly focused on the outlook for relative central bank policy with oil prices providing an added lift via terms of trade."

"Domestic risk is limited ahead of Friday’s employment release, with BoC risk following next week as we await fresh comments from Gov. Macklem and Sr. Dep Gov. Rogers on the sidelines of the IMF meetings in Bangkok. Our FV estimate for USD/CAD is currently at 1.4191 and continues to trade below spot."

"Bullish/neutral – the USD/CAD rally from early September clearly looks to have stalled in the mid/upper-1.42s. Momentum has seen a notable moderation from extremely overbought levels with the RSI returning to the 70 threshold following its recent peak near 80. We see little in terms of resistance between current spot and 1.4400 and see support at 1.4100 followed by the psychologically important 1.4000 level."

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