Scotiabank strategists report that the Canadian Dollar (CAD) is consolidating against the US Dollar (USD), with USD/CAD trading around 1.4215. Despite a narrowing in US–Canada front-end spreads over the past week, the CAD has not gained ground and retains a soft undertone [1]. The confirmation that the United States will not renew the United States-Mexico-Canada Agreement (USMCA) has extended trade uncertainty for Canadian and Mexican exporters, which is expected to be reflected in the Bank of Canada's (BoC) Q2 Business Outlook Survey [1].
Strategists note that while the CAD appears fundamentally undervalued, the gap relative to equilibrium (estimated at 1.4141) has narrowed over the past month, suggesting limited upside potential for the currency [1]. Technical analysis indicates that the USD remains extremely overbought on the daily RSI oscillator, and the 1.4250/00 range is expected to provide resistance to further USD advances, with support seen at 1.4150 and 1.4075/80 [1].
The overall tone is neutral, with USD/CAD price action consolidating. However, there are negative signs from short-term price action, and the possibility remains that the recent USD rally is merely pausing before another move higher [1].
CONCLUSION
The Canadian Dollar remains under pressure amid ongoing USMCA-related trade uncertainty and limited upside potential, according to Scotiabank strategists. While technical resistance may cap further USD gains in the short term, the CAD's recovery prospects appear constrained by both fundamental and technical factors.