Scotiabank strategists Shaun Osborne and Eric Theoret report that the Canadian Dollar (CAD) is trading near its fair value against the US Dollar (USD), with USD/CAD around 1.4115. Their fundamental fair value estimate for USD/CAD is 1.4086 as of today, indicating that the current spot rate is closely aligned with equilibrium levels [1].
The strategists highlight that the CAD remains constrained by wide short-term interest rate differentials relative to the USD, which is the primary factor limiting CAD's upside. Softer crude oil prices are described as a mild headwind, but not the main driver of CAD's performance. While a Federal Reserve decision to hold rates could allow for some modest CAD gains, Scotiabank does not anticipate meaningful improvement for the Canadian currency until rate spreads narrow, which they expect to occur later in 2026 [1].
From a technical perspective, the CAD's situation is largely unchanged. USD/CAD is testing initial resistance at 1.4115/25, with further resistance at 1.4160 and key resistance at 1.4250. Support is noted at 1.4060 [1].
Overall, the outlook for the CAD remains neutral to bullish in the short term, but significant appreciation is unlikely without a shift in interest rate differentials between the US and Canada [1].
CONCLUSION
Scotiabank analysts see limited upside for the Canadian Dollar against the US Dollar due to persistent wide rate differentials. While a Fed hold could provide a minor boost, substantial CAD gains are not expected until later in 2026 when rate spreads may narrow.