CAD: Spreads remain a big impediment to a stronger rebound – Scotiabank

Source Fxstreet

The softer CAD reflects the general trend in the majors against the broadly higher USD on the session. More range trading is likely in the short run; a lot of uncertainty remains and it is hard seeing the CAD improve materially at the moment, Scotiabank's Chief FX Strategist Shaun Osborne notes.  

CAD edges lower on the day

"Over the past 15 years, the rare occasions that USDCAD has pushed above the 1.45 area have been great levels to sell USDs. The previous two occasions that the USD reached the 1.47 area after a short, sharp sell-off in the CAD, the USD was significantly lower just three months later (USD down 7.5% in 2020 and more than 10% in 2016)." 

"In both cases US/ Canada spreads were meaningfully narrower than they are now (heading towards, or already at, par). The CAD might still pick up if tariff risks are priced fully out of the outlook in the next few weeks. Positioning remains heavily short CAD, suggesting scope for a decent squeeze if the trade news does turn suddenly better. But the CAD’s yield deficit remains a big impediment to a major rebound at the moment." 

"The USD’s sharp drop back from Monday’s peak may be stabilizing. Short-term price signals suggest a minor low/reversal was struck as USDCAD losses steadied in the upper 1.42 zone yesterday. Intraday resistance should develop around 1.4375/80 (40-day MA) but spot may do a little more corrective back and filling of the sharp fall seen earlier this week. If the USD regains a 1.44 handle, that correction would risk extending to 1.4450/75. Support is 1.4260/70."

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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