Scotiabank strategists Shaun Osborne and Eric Theoret report that the Canadian Dollar (CAD) is currently trading close to their fair value estimate against the US Dollar (USD), with USD/CAD near 1.3842. The CAD has experienced volatility due to recent trade headlines, including tariffs and counter tariffs, but a concession from VP Vance indicates that trade talks are ongoing. Notably, Canada's tariff response is scheduled to take effect in early September, while the US threat of 50% tariffs on all autos, auto parts, and steel will not be implemented until January, providing a cooling-off period for both sides [1].
The CAD is marginally lower, which may be attributed more to weaker oil prices than to trade concerns or other market drivers. Front-end spreads have remained largely unchanged, and the overall risk backdrop is described as positive. According to Scotiabank's model, the spot rate is trading at fair value, and unless there is a significant deterioration in trade relations, downside pressure on the CAD is expected to remain contained in the short term [1].
From a technical perspective, USD/CAD has edged slightly above the 200-day moving average (1.3843), but the broader technical outlook remains unchanged despite the recent USD rebound. The downtrend that began in late June persists, with daily and weekly trend oscillators still bearish. However, a mild bullish crossover on the intraday DMI oscillator suggests the potential for additional USD gains in the near term, possibly pushing USD/CAD towards the mid to upper 1.39s. Key support levels are identified at 1.3825/30 and a stronger support at 1.3775/85 [1].
CONCLUSION
The Canadian Dollar is trading near its fair value against the US Dollar, with limited downside risk in the absence of further trade shocks. While technical indicators suggest the possibility of short-term USD gains, the overall market sentiment remains neutral to slightly negative due to ongoing trade uncertainties and weaker oil prices.