CAD: BoC decision looms - Scotiabank

The Canadian Dollar (CAD) is modestly lower on the day but has made a little more progress overnight to reach its highest level against the US Dollar (USD) since early November. Grinding gains reflect a range of near and longer run uncertainties facing the CAD -- this week's BoC decision, the late April election and the broader impact of President Trump's tariff plans on the North American economy. The jury is still out on the central bank's decision on Wednesday, Scotiabank's Chief FX Strategist Shaun Osborne notes.

CAD's grind higher may steady in the short run

"Swaps are pricing in some easing risk--7bps or so--but broader risks and uncertainties around the outlook suggest that policymakers may want more time to decide on what rate action needs to be taken. A pause and cautious outlook Wednesday may help nudge the CAD a little higher in the short run. CFTC data Friday revealed some, moderate CAD short-covering, despite the CAD's near 4% rise in April so far."

"Net CAD shorts held by speculative, real money and institutional investors remain a sizeable USD20bn or so, suggesting some sizeable short-covering demand for the CAD could yet emerge in the event of a deeper slide in the USD. The CAD carved out a fourth consecutive net gain on the USD through last Friday and is starting the new week out with another gain, albeit minor. Short-term price action suggest USD losses may be a little stretched through the low/mid 1.38s now, perhaps requiring some minor consolidation or reversal in CAD gains."

"Broader trends are bearish, however, and trend momentum oscillators are aligned bearishly now across the weekly, daily and intraday charts. That implies limited scope for USD rebounds and a readiness for the market to fade minor USD gains (to the mid-1.39s). Broaders risks are tiling towards USD losses extending to 1.3750 or lower in the next few weeks."