CAD continues to rise – Scotibank

The Canadian dollar (CAD) continues to rise. CAD’s steady gains over the past three sessions reflect overall USD weakness, but could also reflect some liquidation of the huge mass of CAD shorts reflected in recent CFTC data, notes Shaun Osborne, chief FX strategist at Scotiabank.

Bulls to test 1.3645/50 in the short term

“The weaker US dollar is marginally below my fair value estimate today (1.3619), which may mean limited room for further short-term losses. The consensus call for Canadian CPI is +0.4% M/M, but there is a wide band of expectations around the result. Despite a massive increase in July, headline prices are expected to fall 2.5% on the year, down from 2.7% in June. The Core Median and Trim measures are expected to decelerate a tenth to 2.5% and 2.8% respectively.”

“Lower inflation will keep the BoC on track to provide more easing in the coming months, regardless of what happens outside of Canada. Swaps are pricing in 27bps of risk reduction at the September 9 meeting and a total of 74bps of cuts in the remaining three meetings before the end of the year. Weaker data may check CAD growth in the short term, but swaps already look very well priced.”

“USD/CAD losses are approaching major support just below 1.36 points. The USD is based around 1.3595 in May and July, and the 200-day MA is at 1.3595 this morning. Technical momentum is bearish on intraday and daily charts. Weekly oscillators are neutral but close to turning bearish. A sustained break below 1.3595 would lead to further losses in the USD towards major trend support (currently 1.3475) from the mid-2021 low. Resistance is 1.3645/50.”