USDCAD: Range remains steady with CAD showing strength – Scotiabank

Canadian Dollar Outperforms as Market Expectations Shift

According to Scotiabank analysts, the Canadian Dollar is showing slight gains against the US Dollar and is outperforming other G10 currencies, continuing the trend seen during earlier periods of geopolitical tension. This strength is largely attributed to narrowing yield differentials and a relatively uneventful Bank of Canada meeting.

Currently, markets are anticipating approximately 60 basis points of additional tightening from the Bank of Canada by the end of the year. This outlook leaves the Canadian Dollar sensitive to any changes in monetary policy, with fair value estimates hovering around 1.34.

CAD Maintains Leadership Among G10 Currencies

As Friday’s North American session begins, the Canadian Dollar is holding steady against the US Dollar and showing notable resilience compared to its G10 counterparts. This mirrors the currency’s robust performance during the initial stages of the US-Iran conflict.

Key technical support for the Canadian Dollar remains at the lower end of its recent trading range, bolstered by the ongoing narrowing of yield spreads.

• Market participants are factoring in around 60 basis points of rate hikes by year-end, but expectations for the next two Bank of Canada meetings are minimal.
• This leaves the Canadian Dollar exposed to potential volatility if the central bank adjusts its policy path, especially if it aligns with the approaches taken by the Bank of Japan or the European Central Bank.

Scotiabank’s fair value estimate for USDCAD has dropped to the low 1.34s, specifically 1.3413, reflecting the latest changes in yield spreads.

Attempts by USDCAD to surpass the upper boundary of its local range, seen since late January, have been unsuccessful, reinforcing resistance around the mid-1.37 level.

(This report was produced with the assistance of artificial intelligence and subsequently reviewed by an editor.)