CAD steadies after government pulls digital tax – Scotiabank

The Canadian Dollar (CAD) slumped Friday following news that President Trump was suspending trade walks with Canada in response to the Digital Services Tax which was due to come into force this week, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Undertone in USD/CAD remains technically bearish

"The CAD steadied relatively quickly, however, and is effectively back to “square one” this morning following news late yesterday that the Canadian government will withdraw the tax and restart trade talks with a view towards reaching a trade agreement by July 21st. Prior to the Friday afternoon news, we had expected the CAD to progress in the short run and push up to the mid-1.35 area."

"Note our fair value estimate for USD/CAD sits at 1.3576 this morning. The snap higher in funds late last week may temper appetite for the CAD in the short run but we feel that bouts of minor USD strength remain a selling opportunity. Friday’s chop interrupted the breakdown in the USD prompted by the bearish Head & Shoulders breakdown on the short-term chart but the broader undertone in USD/CAD remains technically bearish."

"Friday’s quick rejection of 1.37+ levels keeps the focus on the downside for now but spot will need to push below 1.3650 today to make a renewed run lower. It may take a few more days for markets to reorient itself to the broader USD downtrend. Strong resistance remains 1.3750/60."