The Canadian Dollar (CAD) is entering Monday’s NA session unchanged vs. the USD as it consolidates Friday’s Jackson Hole-driven gains. The CAD remains fundamentally undervalued relative to our estimated equilibrium (1.3630) and we expect the CAD to extend its recent rally and make continued progress in eroding its undervaluation, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Still significantly undervalued

"On trade, Canada announced Friday that it would drop many of its retaliatory tariffs on US imports that are USMCA compliant. The move followed reports Thursday that Carney and Trump had held constructive talks on trade and security issues. In terms of data, this week’s highlight will be Thursday’s Q2 current account figures followed by Friday’s Q2 GDP. BoC Gov. Macklem is scheduled to speak on Tuesday in Mexico City, at 2:45pm ET."

"USD/CAD’s technical picture has shifted following Friday’s bearish outside reversal. Similar patterns recently have signaled a mild—at least—recovery in the CAD. USD losses have extended back through support in the upper 1.38s and face only minor support (1.3800/20 area) ahead of a drop back to the 1.3750 area that has been somewhat pivotal for funds since May."

"Some additional positive news for the CAD comes from the crosses where it has stabilized against many of its G10 peers over the week so far. Still elevated EURCAD price action warrants attention as the weekly RSI signal is showing a bearish divergence with gains in the cross which sometimes heralds a reversal in price trends."