CAD trades near estimated fair value on softer USD - Scotiabank

The Canadian Dollar (CAD) has firmed up a little in response to the improvement in risk appetite, although it is lagging its commodity cousins' intraday gains, Scotiabank's Chief FX Strategist Shaun Osborne notes.

CAD is firmer on softer narrower spreads

"Narrower US/ Canada spreads are providing the CAD with some additional tailwinds (2Y swap spreads are the narrowest in four months) but the CAD needs a fair bit more spread compression to sustain more meaningful gains, I believe. Spot is trading right on our fair value estimate (1.4196) today. The BoC's Q1 Business Outlook Survey reflected weaker business sentiment and widespread uncertainty related to tariffs which has spilled over into hiring and investment decision-making. No surprise."

"As might be expected, however, tariffs are also lifting price expectations. Expectations for input prices turned higher for the first time in two years, according to the survey. Markets are clearly leaning towards more easing coming from the Bank in the coming months but policymakers are likely to want more certainty around the outlook than they have right now before deciding whether to cut. I think a move next week is unlikely."

"Spot remains range-bound in a broad sense. But short-term, price signals do suggest the USD peaked yesterday near 1.43 via a daily "doji" candle signals and a bearish outside range pattern on the 6-hour chart. Shortterm resistance is 1.4260/70, with firm resistance at 1.4400/20. Support is 1.4150 and 1.4025/30."