Scotiabank strategists Shaun Osborne and Eric Theoret note that the Canadian Dollar (CAD) is trading flat against the US Dollar (USD), showing mixed performance. While the CAD is underperforming against other commodity currencies, it has gained ground versus major peers like the Euro (EUR), British Pound (GBP), and Japanese Yen (JPY). The improvement in CAD sentiment comes as US, Canada 2-year spreads narrow, with fair value estimated near current levels.
The pair USD/CAD is consolidating around the key 1.40 level, with recent doji candles reinforcing a range-bound tone. Technically, the 50-day moving average sits at 1.4018, adding to the significance of the 1.40 level. The options market has also faded the premium for protection against CAD weakness, reflecting the shift in sentiment.
Recent developments in US, Canada trade talks have contributed to the positive sentiment. Prime Minister Carney hinted at an intensification of talks and modest progress, while US officials confirmed an improvement in the overall tenor of negotiations. This has provided additional support to the CAD.
Scotiabank’s fair value estimate for USD/CAD stands at 1.4020. The latest decline in USD/CAD has turned into consolidation around key technical levels, with opposing doji candles on Friday and Monday adding to the consolidative price action.