The Canadian Dollar (CAD) is drifting a little lower on the session, with spot gains edging back above 1.40 in quiet and rather featureless trade, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Narrower swap spreads trim USD/CAD fair value

"Risk appetite is a little more constructive, commodities have edged a little lower while short-term, US/Canada swap spreads are a little narrower. The latter factor has helped nudge our fair value estimate for USD/CAD marginally lower to 1.3887 this morning and should also help limit CAD losses, absent any other drivers."

"Although the USD is tracking a little higher still from Friday’s intraday low, price gains are moderate and short-term price action suggests the USD is consolidating ahead of further losses (via a bear flag pattern). USD gains should remain capped around 1.4035/40 (40-day MA) to sustain the softer tone of price action that developed through late November."

"Gains through 1.4050 would suggest more sustained USD gains, however. Support is 1.3980."