Canadian Dollar: Pressure builds near 1.40 against US Dollar - Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) remains under pressure near 1.40 against the Dollar, reflecting a firm USD tone and wider US–Canada front-end spreads. Spot is seen as somewhat overvalued versus fair value, while upcoming remarks from Bank of Canada (BoC) Governor Macklem could reinforce inflation concerns and support expectations for tighter policy, offering some medium-term anchoring for the CAD.

CAD pinned near key 1.40 level

"The CAD is flirting with the 1.40 level in early trade Friday, with the currency down very slightly on the day. Minor losses reflect the bullish USD undertone overall rather than anything CAD-specific. Broader risk appetite looks a little soft, with European stocks lower while US equity futures are slightly positive."

"Crude oil prices are lower on the day also but wider US/Canada front-end spreads are the biggest drag on the currency. Spot does remain somewhat overvalued relative to our fair value estimate (1.3910). At the margin, the weaker CAD is unhelpful for the BoC as it considers building inflation risks."

"Governor Macklem is speaking on Monday in Halifax and may reiterate concerns about intensifying upside risks to inflation. Strengthening bets on tighter BoC policy before year end would provide some anchoring for the CAD."

"Bullish—The USD continues to pressure the 50% retracement resistance of the June/August slide in the USD at 1.3990. USD bullish trend momentum on the intraday and daily oscillators supports the positive USD undertone and a sustained push through 1.40 would bolster the outlook for additional gains towards 1.4050/1.4125. Support has shifted higher to 1.3940/50."

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