CAD trading defensively as wider yield spreads remain a drag - Scotiabank

The Canadian Dollar (CAD) is entering Tuesday's NA session with a marginal decline vs. the US Dollar (USD) as it continues to trade defensively in the aftermath of Monday's broad-based USD rally, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD/CAD appears well supported

"The shift in the outlook for central bank policy has been a drag for the CAD, as markets have faded a good portion of their expectations for near-term Fed cuts while maintaining a decent amount of easing from the BoC. The widening of the 2Y US-Canada yield spread appears to have taken a pause however it will likely see a reaction to the 8:30am ET US CPI release."

"For Canada, there are no scheduled releases ahead of Wednesday's building permits and Thursday's manufacturing sales data. The Bank of Canada's calendar is also empty. On trade, developments have been limited in the aftermath of last Tuesday's Trump/Carney meeting."

"Momentum is bullish, as evidenced by the RSI's climb above 50. USD/CAD appears well supported as it pushes toward its 200 day MA (1.4018) following its recent break of the 61.8% retracement level of the September/February rally at 1.3944. The next important technical level is the midpoint of the range around 1.4100 and mid/late February congestion level around 1.4200. We look to near-term support between 1.3900 and 1.3850."