Canadian Dollar: Modest gains against US Dollar - Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret reports the Canadian Dollar (CAD) up 0.2% versus the US Dollar (USD) but underperforming other G10 currencies, with markets still pricing Bank of Canada (BoC) tightening into year-end despite weak labour data. Their fair value for USD/CAD is 1.4214, slightly below spot, and they flag resistance in the mid-1.42s with support at 1.41 and 1.40 ahead of BoC speeches.

Loonie steady as BoC risk priced

"The CAD is entering Tuesday’s NA session with a 0.2% gain vs. the USD, a relative underperformer against all of the G10 currencies in an environment of renewed and broad-based USD weakness."

"The CAD looks to be holding in relatively well following Friday’s surprise labor market disappointment, as market participants have generally maintained pricing of BoC tightening into year-end."

"Short-term rates markets are currently pricing 6bpts of tightening for October and a cumulative 21bpts for December, and risk is elevated into the three public BoC speaking engagements scheduled for later this week."

"Our FV estimate for USD/CAD is currently at 1.4214, slightly below spot and largely reflecting the latest widening in spreads."

"We continue to feel that the mid-1.42s offer resistance with limited gains above the level. We see support at 1.41 and 1.40."

"USD/CAD short-term technicals: Bullish/neutral – the RSI’s drift into the mid-60s is important as it reveals a clear moderation in bullish momentum following the September rally that had pushed the RSI toward 80, well above the overbought threshold (70)."