Scotiabank: Canadian Dollar Undervalued Near 1.41 Against US Dollar

Scotiabank strategists Shaun Osborne and Eric Theoret argue that the Canadian Dollar (CAD) is undervalued against the US Dollar (USD), with a fair value estimate of USD/CAD at 1.4055 suggesting that the CAD is marginally undervalued in the mid-1.41s.

The pair has been flat versus the USD, and has lost ground relative to most G10 currencies, according to Osborne and Theoret. However, they note that the move feels stretched with limited scope for further tightening in Fed expectations while the Bank of Canada (BoC) is perceived as underpriced.

The strategists also point out that wider US-Canada yield spreads have weighed on the CAD over the past couple of weeks. Despite this, they remain bullish on the CAD and expect it to bounce back.