According to Scotiabank analysts Shaun Osborne and Eric Theoret, the Canadian Dollar (CAD) has lagged behind other G10 currencies despite a generally softer US Dollar (USD) tone and improving Canadian economic data relative to the United States. While the CAD has remained effectively unchanged since the day of the FOMC, other G10 currencies such as the New Zealand Dollar (NZD) and Australian Dollar (AUD) have gained more than 1%, and the Japanese Yen (JPY) has been boosted by intervention [1].
The analysts note that the CAD has been constrained by trade uncertainty and a neutral stance from the Bank of Canada. However, they believe that a pick-up in the currency appears overdue, citing steady improvement in positive Canadian data surprises versus the US. Scotiabank's fair value estimate for USD/CAD continues to edge lower, now sitting at 1.3930, reflecting improved CAD fundamentals [1].
From a technical perspective, the CAD is showing stronger evidence of being positioned to reverse more of its May/June decline. USD/CAD closed bearishly on the week through last Friday, and short-term daily oscillators are tilting USD-bearish. The analysts suggest that a push under the 1.3970/80 support zone could pave the way for USD/CAD to move back to a 1.38 handle, with technicals indicating that moderate USD gains to the 1.41 zone should be faded [1].
CONCLUSION
Scotiabank analysts see fundamental and technical support for the Canadian Dollar, with improving Canadian data and bearish USD/CAD technicals suggesting potential gains for the CAD. Market participants may look for a move below the 1.3970/80 level as a signal for further CAD strength.