CAD remains soft ahead of September employment data - Scotiabank

The Canadian Dollar (CAD) is steady on the session after sliding through 1.40 amid a broader wave of US Dollar (USD) gains over the course of the week so far, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Little sign of the CAD recovering ground

"CAD losses leave spot well below our fair value estimate which sits at 1.3790. The USD remains close to two standard deviations above its equilibrium estimate, on the basis of our model, and is one standard deviation above its 40-day moving average--both situations are clear, statistical indications of a high degree of 'stretch' in USD strength."

"There is, however, little sign of the CAD recovering ground. This morning's Canadian employment report may--or may not--provide some relief. While the street is looking for a modest (5k) rebound in jobs in Canada last month amid easier BoC monetary policy and easing trade concerns, Scotia is at the very low end of the forecast range and expects another large--50k--drop in jobs in September."

"USD gains through the 200-day MA (1.3976) are steadying in the low 1.40 range in quiet trade. Spot has traded in a tight range overnight around the 1.4020 level, the 38.2% retracement of the USD's February/ June slide. A solid push above here would point to the USD rally extending to the mid-1.41 zone potentially. Support is 1.3930 and 1.3880. A drop in the USD back through the upper 1.38s is needed to stabilize the CAD in the short run at least."