Canadian Dollar Holds Steady Amid Political Risks and Technical Exhaustion

Scotiabank strategists Shaun Osborne and Eric Theoret note that the Canadian Dollar (CAD) remains range-bound against the US Dollar, with minimal market reaction to Quebec’s provincial election. While the immediate impact is limited, political risks pose a medium-term challenge for the CAD. The Parti Québécois (PQ) secured a minority win, with the possibility of forming a majority government with the Conservatives. However, concerns linger due to the PQ leader’s pledge to hold another secession referendum within his first four-year term, though this would occur after the current US administration.

The Alberta referendum on October 19 adds another layer of political risk, potentially affecting CAD sentiment. Despite these risks, market reactions remain subdued, with risk reversals showing little movement.

Technically, the USD/CAD rally appears overextended, with bearish reversal signals such as shooting star doji patterns and an overbought RSI around 80. The pair has struggled to sustain levels above the mid-1.42s, and support is sparse between current levels and the key 1.40 mark.