Canada’s 3.3% Q2 rebound supports the Loonie, but Scotiabank sees USD/CAD wrestling with 1.39 as the broader Dollar regains momentum.
The US Dollar to Canadian Dollar (USD/CAD) exchange rate ended Friday around 1.3903, extending its late-August rebound despite another strong batch of Canadian economic data.
USD/CAD has still fallen around 0.8% during August and almost 1.5% over the past month, but the pair has recovered sharply from the 1.3733 low reached on 22 August.
Scotiabank analysts had expected the Canadian economy to confirm a solid rebound after the weakness around the turn of the year.
“The Canadian economy appears to have rebounded firmly after the weak period around the turn of the year and Q2 growth seems to be tracking a little above 3%,” the bank said.
That call proved accurate.
Statistics Canada reported that real GDP expanded 0.8% quarter-on-quarter in Q2, equivalent to an annualised 3.3%, the fastest pace since 2023.
Exports rose 3.6%, household consumption gained 0.8% and business investment increased 2.3%, while June GDP also beat Scotiabank’s 0.2% expectation with a 0.3% increase.
The Canadian Dollar barely moved.
USD/CAD climbed towards 1.3908 instead as Kevin Warsh’s Jackson Hole comments drove the broader US Dollar higher and lifted expectations for a September Fed rate increase.
Scotiabank Outlook: CAD Fundamentals Have Improved
Scotiabank had already warned that good Canadian numbers were becoming less capable of surprising the FX market.
“Solid data is perhaps already priced in to the CAD to a degree, given that domestic data have generally outperformed expectations in recent weeks,” it said, although stronger GDP could “add modestly to CAD tailwinds in the short run.”
The bank’s fair-value work also suggested the USD/CAD exchange rate had little reason to move dramatically away from the high-1.38s.
“Spot continues to track our fair value estimate closely,” Scotiabank said, with its equilibrium estimate falling to 1.3865 before the GDP release.
Friday’s close at 1.3903 therefore leaves the pair only modestly above that estimate.
The more interesting question is whether the Dollar’s post-Warsh rally can overpower the improving Canadian backdrop.
A Reuters poll published Friday found all 35 economists surveyed expect the Bank of Canada to leave rates unchanged at 2.25% next week, with most also expecting no policy change for at least another year.
That removes the prospect of an immediate BoC catalyst, leaving US rates and the worsening Canada-US trade dispute unusually important for the cross.
USD/CAD Technical Forecast: 1.3900 Is Becoming a Useful Pivot
Scotiabank’s technical assessment remains officially neutral, but there are bearish signals underneath.
“The USD is maintaining, just about, its push above the 200-day MA (1.3840),” the bank said, while warning that the previous soft close could be a “heads up” that the Dollar rebound was beginning to stall.
“Daily and weekly trend oscillators remain bearish,” with intraday momentum also looking soft.
The levels are relatively clean.
Scotiabank places minor resistance around 1.3895/1.3900, followed by firmer resistance in the mid-to-upper 1.39s.
Support stands at 1.3825/30, with a stronger floor around 1.3775/85.
Friday’s close just above 1.3900 means that first resistance zone is already under pressure.
That contrasts with our recent UBS USD/CAD forecast, where the bank saw scope for near-term support before an eventual decline towards 1.36 during 2027.
Scotiabank is more tactical here.
Canada’s economy is performing well enough to support the Loonie, and its fair-value model sits below spot, but USD/CAD needs to get back under 1.3840 before the technical picture starts looking convincingly bearish again.
For the immediate outlook, 1.3900 is the battleground, 1.3825 the first downside target and the upper 1.39s the level that would signal the Dollar rebound has more room to run.
