Canadian Dollar: Rangebound near fair value against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret observe that the Canadian Dollar (CAD) is little changed, with USD/CAD trading around their fundamental equilibrium estimate near 1.3920. They stress CAD resilience despite volatile Federal Reserve (Fed) expectations and trade uncertainty, but note upside is capped by the wide rate gap. Attention turns to a steady Bank of Canada (BoC) decision and a moderate jobs gain on Friday.

CAD resilient but upside constrained

"The CAD is little changed on the session. Spot has spent the past week trading at or a little below our estimated fair value and the CAD continues to outperform, if only modestly, against that benchmark this morning."

"Our fundamental equilibrium estimate has nudged a little higher since Friday to 1.3920, reflecting wider front-end US/Canada swap spreads in the main. CAD resilience in the face of volatile Fed expectations and the latest round of trade uncertainty is impressive and reaffirms our view that there is limited downside potential in the CAD currently."

"Equally, however, scope for gains is curtailed by the wide rate gap. The Canadian calendar is relatively busy this week. Wednesday’s BoC policy decision is not expected to reflect any change in policy or indeed in the Bank’s cautious view of the outlook. Friday’s jobs report is expected to reflect a moderate gain in employment (15k) after the solid July report."

"Neutral—Technical pointers are mixed. The USD closed out last week on a firm note and reversed back through the August bear channel which signaled the accelerated sell off from the 1.41 area."

"There is room for the USD to correct a little further in the short run but perhaps not too much, given still USD-bearish daily and weekly trend oscillators. Corrective USD gains may stretch to the mid/upper 1.39s but we expect firm resistance at 1.3980/00. Support is 1.3845 and 1.3820/25."