CAD trading flat vs. USD - Scotiabank

The Canadian Dollar (CAD) is trading flat against the US Dollar (USD), having recovered its Asian session losses through the start of early European trade, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Spreads remain steady offering no fundamental direction

"Wednesday's 25bpt BoC cut was well received and was paired with a notably neutral bias that offered no clear signal in terms of forward guidance on rates. The outlook for relative central bank policy has stabilized and 2Y US-Canada spreads have held steady for over a week, reflecting a stabilization in fundamentals for the CAD."

"Domestic rate expectations remain dovish but markets are softening the extent of easing that is currently being priced into markets, with a cumulative 21bpts of cuts priced in by December. For now, we look to Friday's retail sales and the monthly GDP figures scheduled for September 26. Our FV estimate for USDCAD is currently at 1.3586 and sentiment is bullish, with the options market (risk reversals) pricing a slight premium for protection against CAD upside."

"The technical picture remains bearish with a sub-50 RSI and price action that now appears capped by resistance around the 50 day MA (1.3774) trend level. We continue to highlight the importance of the recent head and shoulders bearish reversal pattern offering a measured move target to the mid-1.35s, around the lows from mid-June. We look to a near-term range bound between 1.3700 and 1.3800."