Canadian Dollar: Bearish trend targets 1.4125 – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret report the Canadian Dollar (CAD) is currently marginally weaker against the US Dollar (USD), with USD/CAD at its highest level since late July. They emphasize wide yield spreads and traditional negative Q4 seasonality as significant obstacles for the CAD. From a technical standpoint, the pair has broken crucial retracement resistance and is projected to reach 1.4125, while key support levels are found around 1.4050/60 and 1.3990/00.

Despite a slight decline in the CAD's value today against the USD, losses remain limited, positioning the CAD as the "best of the rest" among G10 currencies following the USD. However, modest gains in the USD could bolster funds to their highest since late July, mirroring the prevailing USD trend. Wide spreads present the primary hindrance to the CAD's fundamental performance, and the negative CAD seasonality in Q4 suggests heightened risks of additional headwinds in the coming weeks.

October and November returns for the CAD versus the USD have historically been negative, with the CAD also generally underperforming against key crosses (EUR, GBP) during Q4. Notably, the AUD/CAD pair is testing parity for the first time in nine years, and positive Australian jobs data this evening is expected to bolster gains in the cross.

If the USD strengthens, it will gradually dismantle retracement resistances, with the breakthrough above 1.4050 (61.8% retracement of the USD's June/August decline) positioning the spot for 1.4125 (76.4% Fibonacci resistance). The bullish upward movement in the USD is backed by robust intraday and daily trend oscillators. The initial support for the USD is at 1.4050/60, followed by 1.3990/00.