Canadian Dollar Facing Pressure Due to Soft Commodities
The Canadian dollar (CAD) is currently experiencing a soft undertone, according to Scotiabank’s Chief FX Strategist Shaun Osborne. This is primarily due to softer commodities and terms of trade that are working against the CAD, keeping its tone defensive for the time being.
Factors Influencing CAD Performance
- Spot trading above the FV estimate of 1.3581
- Soft commodities and terms of trade affecting CAD performance
- Lack of Canadian data reports before Friday’s employment report
Osborne also notes that there are no significant Canadian data reports expected before Friday’s employment report, which could provide more clarity on the Bank of Canada’s (BoC) policy direction at the upcoming meeting. Currently, swaps are hovering around the 25/50 fence with 35bps priced in. Additionally, former BoC Governor Beaudry has suggested a 50bps cut at the upcoming meeting, adding to the uncertainty surrounding the CAD’s performance.
USD Strength and Potential Implications
On the other hand, the US dollar (USD) is maintaining a firm undertone on both intraday and daily charts. Despite a slight pause in its rise from last week’s low, the USD’s upward momentum remains strong. The USD has surpassed the September peak and with supportive intraday and daily DMI oscillators, further strengthening into the 1.36/1.38 congestion zone seems likely. Current support is at 1.3620.
Analysis of the CAD and USD Trends
The current market conditions suggest a mixed outlook for the CAD and USD:
- CAD experiencing pressure due to soft commodities and terms of trade
- Uncertainty surrounding BoC policy decisions adding to CAD’s defensive tone
- USD showing strength on intraday and daily charts, with potential for further gains
- Support levels at 1.3620 for the USD, indicating a bullish trend