Key Moments
- USD/CAD trades around 1.4215, with price action consolidating and the Canadian Dollar maintaining a soft tone.
- Non-renewal of the USMCA is seen extending trade uncertainty for Canadian and Mexican exporters, potentially influencing the BoC’s Q2 Business Outlook Survey.
- C$ is still viewed as fundamentally undervalued, but the gap versus an equilibrium estimate of 1.4141 has narrowed, suggesting limited upside for the currency.
Scotiabank View on USD/CAD Consolidation
Scotiabank strategists Shaun Osborne and Eric Theoret describe USD/CAD trading near 1.4215 as consolidative, with the Canadian Dollar (CAD) continuing to show a soft undertone. This comes even as front-end US-Canada yield spreads have narrowed over the past week, a move that has not translated into meaningful gains for the CAD.
Trade Uncertainty Weighs on the Canadian Dollar
The strategists point to ongoing trade-related risks as a key headwind for the currency. They highlight that confirmation the United States would not renew the United States-Mexico-Canada Agreement (USMCA) has extended uncertainty for exporters in Canada and Mexico. While they note that trade talks can still move forward, the lack of renewal is seen as prolonging an unsettled environment for cross-border commerce.
They also flag that the Bank of Canada’s (BoC) Q2 Business Outlook Survey is likely to capture some of this elevated uncertainty, with implications for business sentiment and investment intentions.
Valuation: CAD Seen as Cheap but With Less Room to Run
From a valuation standpoint, Scotiabank continues to regard the Canadian Dollar as fundamentally inexpensive. However, they stress that the degree of undervaluation has diminished in recent weeks. According to their analysis, the gap between spot levels and their equilibrium estimate of 1.4141 has narrowed steadily over the past month.
This shrinking undervaluation suggests that the CAD may now offer only limited upside potential relative to the US Dollar, even if it still appears cheap on a fundamental basis.
| Metric / Level | Detail |
|---|---|
| Current characterization of USD/CAD | Consolidating around 1.4215 |
| Equilibrium estimate | 1.4141 (this morning) |
| Resistance zone | 1.4250/00 |
| Support levels | 1.4150 and 1.4075/80 |
Technical Backdrop: Overbought USD and Key Levels
On the technical side, the strategists caution that the broader US Dollar rally seen over the past six weeks may not be over, suggesting that the current consolidation could be a pause before another move higher in USD/CAD. For now, they expect the 1.4250/00 band to continue acting as resistance to further US Dollar strength.
On the downside, they identify support at 1.4150 and then at 1.4075/80. While they characterize the current stance as “Neutral” and see USD/CAD price action as consolidating, they acknowledge “some negative signs from short-term price action” and note that “the USD remains extremely overbought on the daily RSI oscillator.”
Strategists’ Summary
Overall, Scotiabank’s assessment portrays a market where USD/CAD is range-bound, the Canadian Dollar remains under pressure despite improved rate differentials, and ongoing trade and policy uncertainty is likely to restrain any meaningful CAD recovery. The combination of a still-overbought US Dollar, nearby resistance, and a narrowing valuation gap points to constrained upside for the Canadian currency in the near term.
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