CAD slips back but USD gains should be capped in the upper 1.36s - Scotiabank

The Canadian Dollar (CAD) has slipped back in overnight trade but losses are marginal, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD/CAD to resume its drop towards 1.3550

"The CAD trend continues to (largely) reflect the broader tone in the USD but factors are shifting modestly in the CAD's favour in our fair value model which estimates an equilibrium of 1.3545 for spot. GDP data for April today (expected flat on the month, slower on the year) reflect the challenges facing the economy amid heightened trade uncertainty. Soft data may weigh on the CAD to some extent intraday but the general USD mood suggests limited scope for CAD losses."

"Legislation aiming to speed up construction and other major projects and reduce internal trade barriers advanced by PM Carney has passed the Senate and will shortly become law. USDCAD short-term technicals: Bearish--The USD's losses below the Head & Shoulders neckline trigger noted in yesterday's report extended to the low 1.36s before the USD steadied."

"The USD's consolidation may see the neckline retested in the short run but 1.3670/75 should offer solid resistance, given solidly USD-bearish trend momentum across the intraday, daily and weekly studies. If that is the case, the USD should resume its drop towards the measured move target (1.3550) implied by the Head & Shoulders pattern. Sustained gains through the upper 1.36s may retest the mid-1.37s."