CAD gains modestly after dip on yesterday's tariff headline - Scotiabank

The Canadian Dollar (CAD) is one of the better-performing currencies on the day so far, reversing the slide that occurred following yesterday's tariff headlines to trade back to the low 1.44 area where it spent most of Monday, Scotiabank's Chief FX Strategist Shaun Osborne notes.

CAD steadies on the day

"The CAD has certainly priced in some tariff risk in recent weeks but not 25% so price action is a little surprising. A generally softer USD is one factor this morning. Short-term vols have slipped as well, with 1-week implied down around a full vol from yesterday's peak. Price action suggests perhaps that markets are skeptical that 25% tariffs will remain in place for too long."

"And while markets are pricing in more risk of BoC easing now, US/Canada 2Y spreads have narrowed significantly (some 20bps) over the past month due to the sharp fall in US rates. Narrower spreads are helping cushion the tariff blow on the CAD for now. Upside potential in the CAD remains limited to the 1.4350/1.44 range for the moment, I have to think."

"Spot's push higher yesterday and subsequent drift off the peak into the close left an indecisive 'spinning top' candle on the daily chart that rather suggests markets are reluctant to push the USD higher. Net losses so far today support that idea. USD support sits at 1.4370, yesterday's low, and 1.4344-- the 40-day MA. Spot losses through the latter would suggest scope for additional losses to the mid-1.42s. USD resistance is 1.4550 and 1.48."