Key Moments
- USD/CAD is trading around 1.3773, with the pair more than one standard deviation above Scotiabank’s fair-value estimate of 1.3567.
- A downside surprise in Canadian CPI, including unexpected softness in services, is weighing on CAD despite strength in core goods.
- Scotiabank strategists see a bullish USD setup, with gains through 1.3758 opening scope for further upside toward 1.3800/15.
Scotiabank View: CAD Underperforms After CPI Surprise
Scotiabank strategists Shaun Osborne and Eric Theoret indicate that USD/CAD is trading near 1.3773, as the Canadian Dollar (CAD) continues to lag following a weaker-than-expected Consumer Price Index (CPI) release. They highlight that the softer inflation numbers have pressured CAD and contributed to the cross trading above their valuation metrics.
The strategists observe that the latest CPI data were weaker than anticipated and remain a drag on the currency. They emphasize that certain components of the report, notably services, showed unexpected weakness, which offset notable strength in other segments such as core goods.
Policy Implications and Market Pricing
According to Osborne and Theoret, the inflation figures suggest that the Bank of Canada (BoC) is likely to remain on hold for the time being. At the same time, they caution that “rising global price pressures are unlikely to pass Canada by in the months ahead.”
They note that front-end swap spreads have widened, reflecting shifting rate expectations. Scotiabank’s estimate of the Canadian Dollar’s fundamental equilibrium level has moved slightly higher to 1.3567. Despite this adjustment, they stress that the US Dollar is still trading “significantly (more than one standard deviation) above its fair value estimate.”
| Metric | Level / Comment |
|---|---|
| USD/CAD spot | Around 1.3773 |
| Scotiabank fair-value estimate | 1.3567 |
| Deviation from fair value | More than one standard deviation above |
| Key resistance (50% retracement) | 1.3758 |
| Upside target zone | 1.3800/15 |
CAD Performance Versus Other Currencies
The strategists point out that “The CAD has failed to pick up any of the positive sentiment that has lifted the MXN, AUD and NZD even modestly so far today.” In their view, the softer CPI release is a central factor behind this underperformance, continuing to weigh on CAD even as some other currencies benefit from a more constructive risk tone.
They reiterate that “Yesterday’s CPI data surprised on the downside and continues to weigh on the CAD,” underscoring the lingering impact of the inflation surprise on investor sentiment toward the Canadian currency.
Technical Outlook: Bias Favors Further USD Strength
On the technical front, Osborne and Theoret describe the current stance as “Bullish—USD gains through the 50% retracement resistance (1.3758) derived from the March 31/May 1 decline in funds support the near-term outlook for more USD strength towards 1.3800/15.” They again link this constructive USD view to the CPI surprise, noting that “Yesterday’s CPI data surprised on the downside and continues to weigh on the CAD.”
This combination of softer domestic inflation, a central bank seen remaining on the sidelines, widened front-end spreads, and a bullish technical setup defines Scotiabank’s near-term constructive outlook for USD/CAD.
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