USD/CAD: Bearish momentum points to range trade – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar is steady against the Dollar, extending a consolidation phase as narrowing interest rate differentials and higher Oil prices support further CAD strength. Their fair value estimate for USD/CAD has dropped to 1.3483, while technicals point to bearish momentum and a likely near-term range between 1.3500 and 1.3600.

Bearish setup within defined range

"The CAD is steady, entering Wednesday’s NA session flat vs. the USD with an extension of this week’s consolidation. Fundamentals favor further CAD strength on the back of narrowing interest rate differentials and oil price gains. Our FV estimate for USD/CAD has fallen considerably over the past week or so, and is currently at 1.3483."

"Short-term correlation studies reveal a strengthened relationship to spreads, as market participants assess an outlook for relative central bank policy that incorporates continued Fed easing along with tightening from the BoC. Short-term rates markets are pricing 12bps of tightening for September, and 80% chance of a hike by December. Domestic risk remains limited ahead of Thursday’s trade figures and Friday’s employment data."

"Bearish—momentum is bearish with an RSI that has drifted into the upper 30s and price action that suggests a retest of the January low around 1.3480. Medium-term trend indicators are providing confirmation, following the clear rejection of resistance around the 50 day MA at 1.3702. We look to a near-term range bound between 1.3500 and 1.3600."

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