Canadian Dollar: Bullish signals point to gains versus US Dollar – Scotiabank

Scotiabank's analysts Shaun Osborne and Eric Theoret identify several bullish signals for the Canadian Dollar (CAD) against the US Dollar (USD). Despite a softer USD tone and improving Canadian data, the CAD has lagged other G10 currencies. They estimate a fair value for USD/CAD around 1.3930, noting technicals suggest potential further downside in the pair.

The CAD has failed to benefit from the generally softer USD tone, remaining largely unchanged since the Federal Open Market Committee (FOMC) meeting. In contrast, currencies like the Japanese Yen (JPY), New Zealand Dollar (NZD), and Australian Dollar (AUD) have strengthened more. While the Bank of Canada remains neutral, improved Canadian data may soon translate into currency gains.

The analysts believe the CAD has fundamental support from economic data, with their fair value estimate for spot edging lower at 1.3930. Short-term technical indicators, however, remain bearish, with USD/CAD closing lower over the past week. A drop below the 1.3970/80 level could signal a move back to the 1.38 handle, with technicals pointing towards a potential retreat from the 1.41 zone.