Scotiabank strategists Shaun Osborne and Eric Theoret report that the Canadian Dollar (CAD) is exhibiting a bearish bias against the US Dollar (USD), with the USD/CAD pair trading near fresh local highs in the upper 1.38s and approaching the 1.3900 level [1]. The CAD is down a modest 0.2% versus the USD, positioning it as a mid-performer among G10 currencies in the context of mild risk aversion, which is attributed to renewed hostilities between the US and Iran [1].
The strategists highlight that wider US-Canada yield spreads and limited guidance from the Bank of Canada (BoC) are exerting downward pressure on the CAD [1]. Market participants are currently pricing in little chance of a rate hike at the upcoming June 10 or July 15 BoC meetings, but anticipate at least one 25 basis point hike by October [1].
From a technical perspective, the rally in USD/CAD is described as bullish, with momentum indicators confirming the move and the Relative Strength Index (RSI) reaching the overbought threshold at 70 [1]. The analysts see little resistance ahead of the 1.3900 level, with support identified around the 200-day moving average at 1.3812. They expect the near-term trading range to be between 1.3800 and 1.3900 [1].
Overall, the combination of geopolitical tensions, yield differentials, and limited central bank guidance is contributing to the current weakness in the Canadian Dollar, with technical signals suggesting further upside potential for USD/CAD in the near term [1].
CONCLUSION
The Canadian Dollar remains under pressure due to wider US-Canada yield spreads, geopolitical tensions, and limited BoC guidance. Technical analysis points to a bullish outlook for USD/CAD, with the pair likely to trade between 1.3800 and 1.3900 in the near term. Market sentiment is moderately negative for the CAD, with expectations of at least one BoC rate hike by October.