Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) is edging higher as the softer US Dollar (USD) and a narrower 1Y US/Canada swap spread support the currency. The Bank of Canada (BoC) left policy unchanged, highlighting offsetting risks from Oil and trade. Technicals point to firm resistance above 1.37 and scope for a USDCAD pullback.

Resistance holds as downside risks build

"The CAD is nudging a little higher today, in line with the generally softer USD tone. The BoC meeting concluded as expected, with unchanged policy. "

"The Bank outlined opposing risks facing the economy from higher oil prices in the short run on the one hand and trade uncertainty in longer run on the other as grounds for steady policy representing the best option yesterday. Governor Macklem noted that slack in the economy meant there was time to assess the impact of rising fuel costs but a significant oil shock could drive consecutive rate hikes. "

"Canadian short rates underperformed in response to the suggestion of sequential tightening moves and amid a general rise in global rates in response to the jump in oil prices. The 1Y US/Canada swap spread has narrowed towards the low end of the range seen this year which should extend some support to the CAD and help reinforce the ceiling on USD/CAD above 1.37 for now."

"Bearish—The early week rebound in the USD appear to have flamed out above 1.37 yesterday, reinforcing firm technical resistance around 1.3725."

"A bearish “shooting star” candle/outside range signal developed around the failed push above the figure [1.3700] and prevailing bearish momentum on the longer run studies suggests spot losses should extend to retest 1.3595/00."

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