Canadian bank strategists expect USD/CAD rallies to attract sellers, with support near 1.3720 ahead of a possible retreat towards 1.3500-1.3550.
The US Dollar to Canadian Dollar (USD/CAD) exchange rate edged higher on Wednesday after two consecutive daily declines, as traders assessed fresh US restrictions on Canadian goods.
At the time of writing, USD/CAD was up 0.12% at 1.3795, recovering some of Tuesday’s 0.20% fall.
Foreign exchange strategists at Scotiabank expects the broader decline to resume, with improving Canadian Dollar fundamentals supporting its bearish view of the pair.
“USD support is 1.3715/35 ahead of the decline back to the 1.3500/50 region.”
That puts the bank’s first support area at 1.3715-1.3735, followed by a potential move towards 1.3500-1.3550.
Trade restrictions draw a muted response
Washington’s latest measures will ban certain Canadian dairy products, motorcycles and most alcoholic beverages from September 29, following Canada’s retaliatory tariffs on US goods.
Scotiabank reported little immediate currency reaction to the announcement, following a similarly restrained assessment of President Trump’s weekend comments about Canada’s exchange rate.
“If the White House does have a beef with the low CAD, some further clarity is required.”
The bank’s estimated fair value for USD/CAD has edged down to 1.3736, below the current market rate.
This is a model estimate of equilibrium rather than a dated exchange-rate target, but its direction supports Scotiabank’s assessment that underlying Canadian Dollar drivers are improving.
The Canadian bank argues that last week’s failed US Dollar recovery established firm resistance in the low-to-mid 1.39 area.
“Trend momentum is USD-bearish across short-, medium-, and long-term studies, meaning that moderate USD gains (through the mid-1.38s) are likely to draw selling interest.”
We think that makes the response to a rebound towards 1.3850 particularly useful in judging this prediction.
Renewed selling there would reinforce Scotiabank’s call, while a sustained recovery into the 1.39 area would challenge its expectation that the downtrend is resuming.
Our currency coverage draws on live market data, official economic releases and published bank research.
