CAD is pulling back within recent range - Scotiabank

The Canadian Dollar (CAD) is soft, down 0.3% vs. the US Dollar (USD) and underperforming most of the G10 currencies in an environment of broad USD strength, extending Wednesday's post-Fed decline, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Wider spreads deliver near-term headwind

"The outlook for relative central bank policy appears to be dominating as a near-term driver of the CAD, widening interest rate differentials in the USD's favor. The 2Y US-Canada yield spread has widened about 20bpts over the past week or so, acting as a headwind that clearly slowed the recent pace of CAD strength."

"We had noted that the CAD had been trading somewhat above our assessment of its fair value. This latest pullback in the CAD has closed the gap, and it's now trading much closer to our USDCAD FV around 1.39. Thursday's domestic release calendar is limited to the BoC's Financial Stability Report (10am ET). There are no scheduled data releases ahead of Friday's jobs report."

"USD/CAD has yet to break out of its range from mid-April, roughly bound between support around 1.3750 and resistance around 1.3900. A break would find additional resistance in the mid-1.39s, around the 61.8% retracement of September-February rally. We continue to expect support around 1.3750."