Canadian Dollar: Bullish structure points to 1.35 handle against US Dollar – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret have noted the Canadian Dollar (CAD) demonstrating strength against the US Dollar (USD). Gains in the CAD are driven by a weaker US dollar, demand for high-beta currencies, narrowing front-end spreads, and easing concerns over trade relations between the US and Canada. The analysts foresee a deeper pullback from USD/CAD's May-June rally, with a move towards the 1.35 handle possible.

The CAD is marginally stronger on the day, reflecting a softer dollar and increased interest in high-beta foreign exchange. The CAD is outperforming major European currencies but trails behind the Australian Dollar (AUD) and New Zealand Dollar (NZD) on the session. Key fundamentals remain positive for the CAD. Front-end spreads have narrowed to the smallest but still significant gap since June, and US-Canada trade uncertainty is gradually diminishing.

However, a significant 1% increase in the CAD this week keeps the technical outlook bearish for the USD. As long as the price remains below the retracement support at 1.3817 and the intraday, daily, and weekly DMI oscillators remain bearish, the technical focus remains on a deeper retracement of the USD's May/June rally to 1.3550.

The CAD is nearing significant medium-term support at 1.3715/30 ahead of the weekend, with a push through this level targeting a 1.35 handle. Resistance is positioned at 1.3795/00.