Scotiabank strategists Shaun Osborne and Eric Theoret report that the Canadian Dollar (CAD) is under pressure, sliding into the weekend due to a combination of weaker-than-expected Canadian employment data and heightened anxiety over developments in the Middle East [1]. Despite these factors, the strategists note that downside risks for the CAD are limited as USD/CAD continues to consolidate within a range of 1.3525 to 1.3760 [1].
The CAD's losses are described as deviating sharply from Scotiabank's fair value estimate, with short-term US-Canada spreads widening after the Canadian jobs data. This widening is expected to push the estimated equilibrium higher on Monday, assuming other factors remain unchanged [1]. However, the degree of stretch is significant, and correlations between the CAD and key market factors are generally weak. Equity market volatility is being offset by higher crude prices, requiring markets to balance these risks in the short term. The strategists believe the CAD still offers fundamental value above the 1.37 area [1].
Looking ahead, policy decisions from the Bank of Canada (BoC) and the Federal Reserve (Fed) scheduled for Wednesday are identified as prime event risks for the upcoming week. Neither central bank is expected to change policy rates, but the meetings may cool market activity as participants await guidance on the policy outlook [1].
Technical signals for the CAD are mixed. The USD is ending the week strongly, pushing above the 40-day moving average resistance at 1.3658, but a technically bearish weekly signal for USD/CAD remains intact. Longer-term trend oscillator signals are aligned negatively for the USD, suggesting continued range trading as the broader consolidation persists with resistance at 1.3750/60 and support at 1.3525/30 [1].
CONCLUSION
The Canadian Dollar is facing short-term pressure from weak employment data and geopolitical concerns, but downside risks are seen as limited while USD/CAD remains in its established range. Upcoming central bank meetings are expected to be key event risks, though no rate changes are anticipated. Technical signals suggest continued range trading, with markets balancing multiple risk factors.