The Canadian Dollar (CAD) is edging higher against the US Dollar (USD), supported by a generally softer USD and a narrowing 1-year US/Canada swap spread, according to Scotiabank strategists Shaun Osborne and Eric Theoret [1]. The Bank of Canada (BoC) concluded its latest policy meeting with no changes to interest rates, citing offsetting risks: higher oil prices in the short term and trade uncertainty in the longer term. Governor Macklem emphasized that economic slack allows the BoC time to assess the impact of rising fuel costs, but warned that a significant oil shock could prompt consecutive rate hikes [1].
Canadian short-term rates underperformed following the BoC's suggestion of possible sequential tightening and a general rise in global rates due to the jump in oil prices. The narrowing of the 1-year US/Canada swap spread, now near the low end of its 2024 range, is seen as supportive for the CAD and is expected to reinforce resistance for USD/CAD above the 1.37 level [1].
From a technical perspective, the USD/CAD pair encountered firm resistance above 1.37, with a bearish 'shooting star' candle and outside range signal developing around the failed push above 1.3700. Prevailing bearish momentum on longer-term studies suggests that USD/CAD could see further declines, potentially retesting the 1.3595/00 area [1].
CONCLUSION
The Bank of Canada's steady policy stance, combined with technical resistance and a narrowing swap spread, is supporting the Canadian Dollar and capping USD/CAD rallies. Market sentiment remains bearish for USD/CAD, with analysts expecting further downside toward the 1.3595/00 level.