According to Shaun Osborne, Chief FX Strategist at Scotiabank, the Canadian Dollar (CAD) is retaining a firm undertone but facing challenges in pushing past the upper 1.35 zone.
Analysis: USD Decline and Its Impact on CAD
Osborne notes that the fair value estimate for CAD has slightly increased to 1.3631, indicating limited potential for further CAD gains at the moment. The recent intervention by the Canadian government to impose binding arbitration on the country’s railways and unions has removed a potential negative impact on CAD, safeguarding vital supply chains and the economy.
Despite the positive development, Canadian Retail Sales are expected to decline by 0.3% in the month, aligning with previous estimates based on weak May data. The bear trend in USD/CAD remains strong on the charts, with short-term indicators suggesting a temporary pause in the USD decline but no imminent signs of a reversal.
Technically, intraday oscillators show signs of being overextended, but the daily DMI oscillator indicates that the USD decline still has room to continue. Resistance levels for USD/CAD are at 1.3625/35 and 1.3675/00, with support at 1.3550/60.
Impact on Investors and Traders
For investors and traders, the analysis suggests that the Canadian Dollar may face challenges in extending gains against the US Dollar in the near term. The intervention by the Canadian government has mitigated potential risks to the economy, but weak retail sales data could weigh on CAD performance.
Traders monitoring USD/CAD should be aware of resistance levels at 1.3625/35 and 1.3675/00, while keeping an eye on support at 1.3550/60. The overall trend indicates a bearish sentiment towards USD, with potential for further decline.
The Canadian Dollar (CAD) retains a firm undertone but is struggling to extend gains beyond the upper 1.35 zone, Scotiabank’s Chief FX Strategist Shaun Osborne notes.
USD decline has room to run
“Our fair value estimate has edged a little higher to 1.3631 today, underscoring the limited pathways—right now—to additional CAD gains. The Canadian government intervened yesterday to impose binding arbitration on Canada’s railways and unions to halt the lockout across Canada’s freight network, removing the risk of significant damage to vital supply chains and the economy.”
“That potential CAD negative has been removed, at least. Canadian Retail Sales are forecast to drop 0.3% in the month, in line with preliminary estimates released with the weak May data. The bear trend in USD/CAD remains well-entrenched on the charts. Short-term price trends suggest a minor pause in the USD decline but there are no signs of a pending reversal.”
“Intraday oscillators are looking somewhat extended but the daily DMI oscillator suggests the USD decline has room to run. Intraday resistance is 1.3625/35, with stronger resistance at 1.3675/00. Support is 1.3550/60.”