Canadian Dollar: CAD gains against US Dollar on BoC bets – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note that USD/CAD is trading close to 1.4054, bolstered by Alberta's decisive 76% rejection of separation from Canada and surging oil prices. Although Canadian inflation fell short of forecasts, Bank of Canada Governor Macklem's recent remarks about energy-related inflation risks have investors anticipating a possible rate hike at the upcoming policy meeting.

Scotiabank anticipates a 25 basis point increase, with swap prices around 20 basis points of tightening. Alberta's voting results reflect a strong margin of victory, which could help reassure any lingering sovereignty apprehensions among separatists. Although Canadian inflation data missed expectations, headline inflation showed a slight uptick, while core measures remained subdued.

Still, Macklem's comments have market participants pricing a higher likelihood of a rate increase next week. The CAD's technical conditions are improving, with spot price nearing a minor new cycle low and USD losses extending below 1.41, bringing the 50% retracement of the USD's September rally to 1.4030. The 40- and 100-day moving averages converge near 1.4045, and a break below this level may signal that CAD gains could continue, potentially reaching the mid-1.39s.

Intraday resistance forms at 1.4070, with 1.4115 as a potential hurdle for a stronger rebound in USD.