Canadian Dollar: Risks skewed higher against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) is a mild outperformer versus the US Dollar (USD), supported by firmer Oil, even as USD/CAD trades about one standard deviation above their fair value estimate. Softer Canadian jobs data contrast with strong wage growth, leaving Bank of Canada (BoC) tightening expectations unchanged. Technically, they see recent gains stalling below resistance and highlight nearby support levels.

CAD steadies as USD/CAD rally stalls

"The CAD is a minor outperformer against the USD on the session by virtue of holding unchanged on the session, with the aid of firmer oil prices. Spot remains about one standard deviation above our fair value estimate (1.3544) this morning, however."

"Canadian jobs data Friday were soft—a drop in jobs, driven by full-time losses, and a rise in the unemployment rate. Hours worked were flat in April, suggesting a sluggish start to Q2 from an activity point of view."

"However, wage gains (4.8%) were stronger than forecast and continue to run well above inflation; with policymakers sensitive to inflation risks, strong wage growth meant that OIS continued to price in around 40bps of tightening by year-end, unchanged from just before the jobs data."

"Despite USD/CAD’s grind higher last week taking out resistance in the low/mid 1.36 zone, gains appear to have peaked around 1.3710/20 resistance that capped rebounds over the past month. The USD’s push higher has turned short-term trend momentum neutral but daily and weekly DMIs are still firmly in USD-negative territory which should help curb gains. "

"A clear push through 1.3720 may see USD gains extend to 1.3750/00. Support is 1.3640/45 and 1.3550/75."

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