CAD holds near yesterday's high on soft USD, unfazed by BoC - Scotiabank

The Canadian Dollar (CAD) is steady, holding near yesterday's high against the US Dollar (USD). The BoC's 'dovish hold' outcome yesterday was largely as expected, Scotiabank's Chief FX Strategist Shaun Osborne notes.

Trend signals are aligned bearishly

"Policymakers noted uncertainty around tariffs and their impact on Canada's economy as grounds for caution at the moment. Canada has not responded to the latest ratcheting up of trade headwinds from the doubling in steel and aluminium tariffs. PM Carney said the US and Canada are in 'intensive' negotiations but will retaliate if talks fail. None of that appears to be bothering the CAD as it takes advantage of the weak USD. Spot continues to trade well below our estimated fair value (1.3733)."

"New cycle lows for spot yesterday continues to reverse the late 2024/early 2025 surge in the USD. USD/CAD has closed lower for four consecutive months (since the early February jump to 1.48) and might stretch that to five net monthly USD losses through June. That would be a pretty rare run for the CAD. The last time that happened was 2020 when spot was reversing from the COVID jump to 1.47. That move extended to 1.20 the following year."

"We've noted previously that USD's slide under the mid-1.37 area opened the door for a push to the 1.34 area (full retracement of that USD run higher over the turn of the year). We had overlooked weekly trend support at 1.3645 but it's not clear that this can offer a sustainable foothold for the USD. Trend signals are aligned bearishly across the intraday daily and weekly charts which suggest more losses for the USD ahead and a likely drop to that 1.34 area in the next few weeks."