CAD little changed on risk aversion - Scotiabank

The Canadian Dollar (CAD) is recovering a little ground after weakening in early Asian trade on the broad risk-off tone to markets, Scotiabank's Chief FX Strategist Shaun Osborne note, Scotiabank's Chief FX Strategist Shaun Osborne notes.  

Technicals remain positive

"The CAD picked up some ground on the weaker USD last week but it lagged all of its major currency peers, except the JPY. While broader tariff risks appear to have eased for some, the threat being aggressively tariffed from February 1 hangs over Canada and Mexico and that threat is likely to preclude any major gains in the CAD for now." 

"Beyond that, the CAD will have a hard time gaining significantly on the USD while interest rate differentials remain wide. The BoC is likely to cut its policy rate 25bps this week, with swaps more or less fully pricing in a ¼-point cut. USD/CAD fair value sits at 1.4210 this morning."

"There are some distinctly positive signs for the CAD on the charts. Last week, USD/CAD cracked trend support that has guided USD/CAD higher since September. Daily price action shows a developing broadening top signal and the weekly chart reflects a bearish key reversal week formed last week. Key support is 1.4255--23.6% retracement of the Q4/Q1 rally; a break below here targets a drop back to 1.40/1.41. Resistance is 1.4415 and 1.4445/55."