CAD: Limited potential to recover - Scotiabank

The CAD has recovered about half of the post-FOMC drop seen yesterday afternoon. Political uncertainty is not exclusive to Canada, with a deal to avoid a US government shutdown at the weekend failing after President-elect Trump criticized the plan Scotiabank's Chief FX Strategist Shaun Osborne notes.  

CAD steadies on the day

"Lawmakers have limited time to come up with a workable alternative. At this point, a lengthy government shutdown seems unlikely but the issue is helping take some of the heat off the CAD, if only temporarily. Scope for CAD gains is limited by the weak risk backdrop and firmer US yields. USD dips to the low/mid 1.43s are likely to remain well supported for now."

"The USD is consolidating yesterday's solid gains. Spot has drifted back somewhat from Wednesday's peak and short-term price signals are leaning bearish, with the market forming an "evening star" reversal pattern on the intraday candle chart."

"USD losses may extend to test minor support at 1.4320 but a bullish alignment of trend strength signals on the short-, medium- and longterm oscillators suggest that scope for USD losses is limited."