The Canadian Dollar (CAD) has been on a steady rise, gaining traction over the past few sessions. This trend not only reflects a general weakness in the US Dollar but also indicates a possible liquidation of CAD shorts, as noted by Scotiabank’s Chief FX Strategist Shaun Osborne.
Bulls Eyeing 1.3645/50 in the Near Term
Osborne points out, “The weaker USD is currently below my fair value estimate of 1.3619, suggesting limited room for further losses in the short run. The consensus forecast for Canadian CPI is a modest +0.4% M/M, with varying expectations around the actual outcome. Despite a significant increase in July, headline prices are expected to ease to 2.5% annually, down from 2.7% in June. Core Median and Trim measures are also projected to slow down slightly to 2.5% and 2.8% respectively.”
He adds, “The anticipated slowdown in inflation is likely to keep the Bank of Canada (BoC) on track for further easing in the upcoming months, regardless of global conditions. Market swaps are pricing in a 27bps probability of easing at the September 9th meeting, with a total of 74bps in cuts expected by year-end. While weaker data could temper the CAD’s ascent temporarily, market swaps already seem to have factored in a significant portion of the potential cuts.”
Osborne highlights, “The USD/CAD pair is approaching a key support level near 1.36. The USD found support around 1.3595 in May and July, with the 200-day MA currently at 1.3595. Technical indicators show bearish momentum on both intraday and daily charts, while weekly oscillators are neutral but inching towards a bearish signal. A sustained break below 1.3595 could trigger further losses towards major trend support at 1.3475. On the upside, resistance is seen at 1.3645/50.”
Analysis and Implications for Investors
For investors, the strengthening of the Canadian Dollar against the US Dollar could have several implications. A weaker USD and potential easing by the BoC may provide support for the CAD in the near term. However, the already priced-in market expectations for rate cuts suggest limited upside potential for the CAD. Traders should keep a close eye on key technical levels, such as the support at 1.3595 and resistance at 1.3645/50, to gauge potential trading opportunities.