USD/CAD: Minor USD rebounds are liable to attract renewed selling interest - Scotiabank

The Canadian Dollar (CAD) has slipped back amid the broader rebound in the USD vs US Dollar (YSD). USD gains have taken funds back to the mid/upper 1.37s and largely reflect the rebound in the USD rather than any CAD-negative development, Scotiabank's Chief FX Strategist Shaun Osborne notes.

CAD eases on the daily chart

"The CAD's unusual, negative relationship with risk appetite remains intact, given the broader gains in stocks. Modest USD gains are liable to run into renewed USD selling interest relatively quickly. The latest IMM data released Friday reflected another jump in net CAD shorts last week as speculative traders and investors responded to soft economic data (and speculation about BoC policy) and spot's test of the 1.40 area earlier this month."

"But elevated core inflation and the ongoing uncertainty over US tariff policy suggests the BoC is likely to remain on hold in the short run at least while the CAD's strong reversal from the 1.40 zone may extend, testing the resolve of the build-up of short interest in the CAD since the start of May. And if the weak stocks/soft USD trend remains intact, Canadian portfolio managers may have to increase their FX hedges, adding to CAD tailwinds."

"USD gains have extended through the 1.3745/50 area that served as support for USDCAD earlier in May but the USD advance may not extend too far. Broader technical signals are USD-bearish and trend strength oscillators remain bearishly-aligned for the USD across the short-, medium- and longterm studies. Typically, this situation only allows for limited counter-trend corrections (higher, in this case). I anticipate firm USD resistance between 1.3785/1.3815 in the short run. USD support is 1.3740 (minor) and 1.3685/90."