CAD outperforming on crosses as spreads offer support – Scotiabank

The Canadian Dollar (CAD) is down a marginal 0.1% against the US Dollar (USD) and outperforming on the crosses, extending its tight post-Jackson Hole range as it maintains its recent gains, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

USD/CAD’s range has been incredibly narrow

"The CAD’s relative outperformance is to be expected, as close economic ties to the US dampen the extent of currency weakness (relative to peers like AUD and NZD). The outlook for relative central bank policy remains supportive and the 2Y US-Canada spread is hitting fresh lows, pushing to 95bpts and reaching levels last seen in October 2024. Our FV estimate for USD/CAD is currently at 1.3650, suggesting a meaningful undervaluation for the CAD at the moment."

"The domestic calendar remains limited ahead of Thursday’s Q2 current account figures and Friday’s Q2 GDP. Gov. Macklem’s Tuesday speech offered little in terms of the near-term outlook however we remain CAD bulls and see scope for CAD strength as markets fade their easing bias with September still pricing 9bpts of cuts."

"USD/CAD’s range has been incredibly narrow following Friday’s bearish outside reversal. The RSI is close to neutral, offering little in terms of momentum. We continue to look to a near-term range bound between 1.3780 support and 1.3920 resistance."