Scotiabank strategists Shaun Osborne and Eric Theoret report that the Canadian Dollar (CAD) is currently flat against the US Dollar (USD) and has underperformed most G10 currencies as of Friday’s North American session. They attribute this weakness to wider US–Canada yield spreads, which have acted as a significant headwind for the CAD in recent weeks. However, the strategists believe this move appears stretched, with limited room for further tightening in Federal Reserve expectations, while the Bank of Canada is seen as somewhat underpriced [1].
Scotiabank’s fair value estimate for USD/CAD stands at 1.4055, indicating that the Canadian Dollar is marginally undervalued compared to the current spot rate in the mid-1.41s. The strategists note that recent short-term price action is constructive and hints at a potential pause after a nearly unbroken run of daily gains in USD/CAD since July 9th. They describe the rally as impressive but now overdone, with momentum indicators such as the RSI reaching 72, signaling overbought conditions [1].
Thursday’s mixed retail sales figures had little impact on the CAD, and there are no significant data releases expected before Tuesday’s monthly GDP report for July. The strategists highlight that the USD/CAD pair has struggled to extend gains much above the mid-1.41s, with strong resistance anticipated around the 1.4200 level. On the downside, they see little support between the current spot rate and the psychologically important 1.40 level [1].
CONCLUSION
Scotiabank analysts view the Canadian Dollar as marginally undervalued against the US Dollar, with the recent USD/CAD rally appearing stretched and overbought. Market participants are likely to watch for a pause or reversal in the pair, especially with key resistance near 1.4200 and limited support down to 1.40.