CAD fails to take advantage of softer USD tone - Scotiabank

The Canadian Dollar (CAD) is trading marginally lower in overnight trade but is holding a tight range around the 1.3850 point, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

CAD underperforms on the day

"There is little new news for markets to trade on the and overnight moves reflect a soft tone for North American FX generally. CAD sentiment remains weak, with spot diverging from our fair value estimate (1.3646) by the most this week since the early spring's uncertainty driven by US trade policy."

"The CAD has failed to reflect narrower US/Canada short-term spreads and appears to have been weighed down by, rather than benefitting from, the softer tone in the USD broadly which developed through August. From that point of view, its hard seeing the CAD staging a significant recovery at this point."

"USD/CAD retains a mild upside bias but price signals have recently turned mixed, suggesting a degree of indecision in the market about the near-term direction of the USD. We note USD support at the 40-day MA at 1.3775 ahead of potential bear (Head & Shoulders) trigger at 1.3730, connecting the early and late August lows for USDCAD. Resistance is 1.3855 ahead of 1.3925."