The Canadian Greenback (CAD) is firmer towards the weak US Greenback (USD) on the session to this point however positive factors are lagging the CAD’s main foreign money friends, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.
Narrowing US/Can spreads are supportive
“There’s room for additional enchancment within the CAD, nevertheless. Decrease US charges are serving to compress US/Canada spreads meaningfully. The 2Y money bond and swap spreads have narrowed sharply this week to commerce again to the narrowest yield benefit (simply over 100bps in each circumstances) for the USD since December. The 2Y money bond unfold is again underneath its 200-day MA for the primary time since final March, suggesting an additional, significant narrowing within the yield hole could develop.”
“Narrower spreads are driving our honest worth estimate for spot decrease—1.3599 this morning—and will assist drive a bit of extra power within the CAD within the quick run. Broader USD weak spot and the drop in spreads will restrict scope for USD rebounds from right here. Spot has not made any decisive progress decrease in the best way that among the different greenback pair have at the moment and, in impact, USD/CAD stays inside the current vary that has pivoted across the low 1.37 zone.”
“The makings of a extra important technical drop are obvious on the short-term chart, nevertheless, the place main, short-term help sits at 1.3670 (a possible bearish Head & Shoulders set off). A transparent break underneath help would indicate potential USD losses to the mid-1.35s, close to the midJune low. Resistance is 1.3725 and 1.3750.”
