CAD slips, strays from fair value – Scotiabank

The Canadian Dollar (CAD) retains a soft undertone but trading patterns are closely aligned with the core majors for the most part, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

US/ Canada spreads narrow

"USD/CAD’s push back to the 1.38 area leaves spot trading quite significantly above its estimated fair value (1.3614) once again, with the CAD finding no support from typical positives, such as the pro-risk mood or, more particularly, the compression in short-term US/Canada cash bond/swap spreads."

"The 2Y yield gap is trading near the 100bps mark and edged briefly below that point Friday/Monday to the narrowest yield advantage for the USD since last November. Narrower spreads should at least help limit upside movement in the USD in the near-term even as trade worries linger. Canada releases trade data at 8.30ET."

"USD/CAD technical signals are mixed. The USD traded firmly in late July and extended gains through 1.3750/00 where I had expected firmer resistance. But USD gains look stretched on the daily oscillator and price action Friday formed a bearish outside range reversal. That should mean a firm cap on the USD for now at 1.3880 and a return perhaps to the sideways trading range (1.3550/1.3750 roughly) that prevailed through June/July."