CAD grinds higher versus a weaker USD - Scotiabank

The Canadian Dollar (CAD) is getting pulled along with the broader sell-off in the USD and is notching up another decent weekly gain--its fourth on the trot and the largest since late 2022. US/Canada spreads have compressed somewhat amid all the volatility in markets but the weak USD tone is the primary driver of the CAD's rise, Scotiabank's Chief FX Strategist Shaun Osborne notes.

BoC can remain on hold next week

"The CAD has outperformed its commodity peers this week but it is lagging the core G10 currencies by a significant margin. Fair value is getting stretched (stocks, volatility and commodity prices are a constraint) and our equilibrium estimate sits a little above 1.40 this morning. That is not necessarily an impediment to further USD losses in the short run though."

"At the margin, a stronger CAD (implies some tightening) adds a tad more weight to the idea that the BoC can remain on hold next week. The downtrend in USD/CAD is becoming more established on the short- and medium-term charts. A solid close for the CAD this week, below the 200-day MA at 1.4006) or even below 1.3944 (61.8% retracement of the Sep/ Feb USD rally) would be a technical plus for the CAD."

"Intraday price action does suggest the USD sell-off is moderating after pushing below 1.39 earlier. Market pressure on the USD may relent briefly but gains towards the high 1.39s/low 1.40s will likely attract renewed selling."