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Scotiabank analysts Shaun Osborne and Eric Theoret highlight that the Canadian Dollar (CAD) remains relatively stable, with the Bank of Canada (BoC) outlook staying consistent with their previous statement. The possibility of tighter policy remains open, especially as inflation is close to 3%. Technical indicators indicate more potential gains for the USD/CAD exchange rate.

BoC Governor Macklem’s recent comments did not move the needle in terms of interest rates, as they aligned with the latest policy statement, which weighed trade tensions against persistent price pressures. The door to tighter policy is still open, but a clearer picture of the rate outlook may emerge following the October policy decision.

While a weaker CAD will contribute to inflation risk to some extent, the Bank of Canada generally considers the impact on inflation to be modest and delayed. However, policymakers may be more attentive to CAD trends given that inflation is hovering around 3%, unlike when it was lower. Despite President Trump's reported deal with Belarus to import potash, the agreement is improbable due to the lack of spare export capacity in Belarus.

The bullish outlook for USD/CAD is supported by USD progress towards the 1.3990 resistance level, which is the 50% Fibonacci retracement of its decline between June and August. Short-term targets of 1.4050 and 1.4125 are also possible if the 61.8% and 76.4% Fibonacci retracements are achieved. USD strength is fueled by bullish trend oscillators and an initial support level at 1.3900-1.3915.