Canadian Dollar: Trade shock weighs against US Dollar – Scotiabank

Scotiabank analysts Shaun Osborne and Eric Theoret reveal that the Canadian Dollar (CAD) stands out as the chief underperformer among G10 currencies following the collapse of US/Canada trade negotiations. The Canadian government's commitment to counteract the US tariffs by providing equal value in domestic aid and a pledge to respond "dollar for dollar" injects further uncertainty for Canadian businesses.

While the general USD/CAD trend remains downward, Scotiabank anticipates potential short-term gains for the USD within the 1.39 range. The abrupt collapse of the trade talks on Friday, however, has dampened the positive sentiment that had been building up for the CAD over the past four weeks, marking a period of heightened uncertainty regarding Canada's relationship with the US.

Despite the initial market reaction being muted, market participants remain cautious, suggesting that a deal could still occur in the coming weeks. As Canadian businesses grapple with renewed uncertainty, Ottawa appears poised for an extended trade war, casting doubt on the likelihood of reaching a broader agreement. The CAD is persistently lagging behind the USD, and technical indicators indicate no change in the underlying trend, with the downtrend extending since late June.

The CAD's current position under the mid/upper 1.39 range remains intact, with potential for additional USD gains in the short term.