USD/CAD appears neutral near term – Scotiabank

In view of FX Strategists at Scotiabank, spot should face significant congestion in the 1.3000 neighbourhood.

Key Quotes

“Domestic rate expectations are firming and yield spreads are showing signs of stabilization, however measures of implied CAD volatility remain elevated at multi-month highs. Risk reversals appear to have diverged over the past week, suggesting continued demand for protection against longer-term CAD weakness despite a material decline in the premium for shorter time horizons. Our current FV estimate for USDCAD is around 1.3020”.

“USDCAD is soft however it appears to be struggling to extend Tuesday’s decline much beyond the upper bound of the (previously broken) descending trend channel from June. Support has been observed around the 100 day MA (1.3040) and we would anticipate considerable congestion ahead of 1.3000. Daily momentum indicators are neutral and trend strength signals are weak (sub-25 ADX at 14). Near-term resistance is limited ahead of 1.3120”.