USD/CAD: Consolidation holds with firm support – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret highlight that the Canadian Dollar is modestly firmer against a softer Dollar, supported by narrower 1-year swap spreads and resilient risk appetite despite lower Oil. USD/CAD remains well above an estimated fair value near 1.3375, with analysts judging downside CAD risk limited and technicals pointing to firm support in the low 1.35s within a broader consolidation.

CAD resilient with limited downside risk

"The CAD is maintaining a small gain on the generally softer USD as lower crude prices are offset by the rebound in risk appetite."

"The CAD has found some additional support at the margin from slightly narrower 1Y swap spreads over the past week but may struggle to gain a stronger sense of direction as market attention shifts away from geo-political tensions for the moment at least."

"Despite the CAD’s resiliency, spot is trading quite significantly above fair value still (estimated at 1.3375 this morning, although it may take a day or so for the past week’s volatility to work out of the model)."

"At the very least, the risk of a sharp fall in the CAD looks limited at this point."

"Scope for USD gains is limited, however, as the broader consolidation in place since the start of Feb extends."

"Spot losses based a little below noted support at 1.3530 and, with a bullish “hammer” signal developing on the daily chart yesterday, the low 1.35 zone looks firm support for the USD in the short run"

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