Markets focus on Boc – Scotiabank policy outlook

The Canadian dollar (CAD) is a clear underperformer in the session, slipping back into the low 1.37 area despite relatively limited USD movement elsewhere, notes Shaun Osborne, chief FX strategist at Scotiabank.

CAD is underperforming on the day

“The easing of Fed rate cut bets and some clamor for the BoC to cut rates aggressively later this month is driving swap spreads wider and supporting the USD. The 1-year exchange rate edged up 10bps to nearly 80bps yesterday – another minor cycle as markets bet on more policy divergence between the BoC and the Fed.

“It seems a bit overblown to me, and our spot fair value estimate (while conceding ground to a stronger USD this week) seems to agree. Estimated balance is 1.3648 today.”

“A seventh consecutive day of USD gains leads deeper into the 1.36-1.38 congestion zone, which may – ultimately – slow the USD’s rise. The underlying trends are bullish and this likely limits the scope for a USD correction to the 1.3700/20 area in the near term.”