Scotiabank’s Analyst Team notes the Canadian Dollar (CAD) has slipped below 1.39 against the US Dollar (USD) as weak domestic data contrast with stronger United States (US) figures, widening rate spreads in favour of the USD. They highlight CAD undervaluation versus their short-term equilibrium estimate, but stress that weak fundamentals and trade uncertainty leave CAD driven by external developments, with technicals pointing to vulnerability toward the late-March high.

CAD pressured by weak fundamentals

"Weak domestic economic data of late contrast with the obviously more robust US data run, accentuating widening US/Canada interest rate spreads that have helped drive spot higher in the past few weeks."

"The CAD’s undervaluation relative to our short-term equilibrium estimate (1.3689) is becoming a little more acute which may limit the scope for additional losses in the short run but, as we have mentioned often recently, weak domestic fundamentals and lingering trade uncertainty mean that the CAD is not master of its own destiny at the moment. External developments will remain a strong influence on price action. "

"Neutral—New lows for the CAD this morning negate in effect the USD-bearish price signals that developed on the charts last week. Intraday price signals do indicate some minor relief for the CAD potentially this morning but the USD’s push above the mid-1.38 area leaves the CAD vulnerable to a retest of the late March high at 1.3967."

"Since the start of the year, the USD has struggled to hold 1.39+ levels for more than a week or so and a swift CAD recovery has followed. Intraday support is 1.3860/70. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)