CAD gets a mild tailwind from narrower spreads after CPI to press gains on USD - Scotiabank

Yesterday's hotter than expected April CPI data served to dampen expectations of a June BoC rate cut, putting some moderate, downward pressure on US/Canada interest rate spreads, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Trend momentum oscillators are picking up bearishly for the USD

"Markets continue to price in some risk of a BoC cut--Scotia anticipates a hold at the June decision at this point--but the narrowing in short-term rate spreads has provided a modest tailwind for the CAD against a generally softer USD today. Estimated FV for spot has slipped to 1.3868 this morning."

"Narrower spreads should also help reinforce USD selling interest at or a little above the 1.40 area. Note Finance Minister Champagne and BoC Governor Macklem will speak tomorrow afternoon as the G7 meeting winds up."

"Spot has found solid resistance above the 1.40 area so far in May and weakness below support at 1.3895/00 today signals the potential for a deeper drop in funds back towards the 1.3750/1.38 range. Trend momentum oscillators are picking up bearishly for the USD again which should grease the path lower for spot and limit USD rebounds. Initial resistance sits at 1.3910/15. Strong resistance is 1.4025 (200-d MA and recent highs)."