CAD steadies, remains heavily undervalued - Scotiabank

The Canadian Dollar (CAD) is all but unchanged in quiet trade. Steadier stocks and some retracement in market volatility (the VIX has nudged under 20) offer some reprieve for the CAD alongside the general drift in the US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Charts turn constructive

"Recent trends reflect the fact that external influences are the primary driver of short-term CAD movement, absent clearer signals from the economy. BoC Senior DG Rogers repeated her call for action to boost domestic productivity in remarks yesterday."

"Recent USD gains still leave spot trading well above our estimate of its estimated equilibrium (little changed at 1.3783) as factors that typically drive the CAD steady or improve modestly. The USD remains around two standard deviations above our fair value estimate. Short-term price signals suggest that USDCAD may have reached a minor (at least) peak yesterday at 1.4080 (now resistance)."

"The intraday chart reflects a bearish outside range signal developing around the early, intraday peak yesterday. The daily chart reflects a bearish "shooting star" candle forming over the course of the entire session. Trend strength remains firmly in the USD's favour but the USD does look technically overbought on the daily chart. Initial USD support sits at 1.3970/75 and 1.3930."