CAD Gains vs USD Seen as Fair Value Estimate Falls
According to Scotiabank's Shaun Osborne and Eric Theoret, the Canadian Dollar (CAD) has underperformed compared to other G10 currencies despite a softer US Dollar (USD) tone. They point out that CAD fundamentals are stronger than previously thought, with a fair value estimate for USD/CAD around 1.3930.
The analysts note that while trade uncertainty and the Bank of Canada's neutral stance have constrained the CAD, there is evidence of improving Canadian data surprises versus the US. This improvement has not yet been reflected in the exchange rate, but Scotiabank believes it will be.
Osborne and Theoret also highlight bearish technical signals for USD/CAD, with short-term oscillators tilting USD-bearish. They suggest that a push under 1.3970/80 could pave the way for spot to move back to a 1.38 handle, with fading moderate USD gains expected.