The Canadian Dollar (CAD) drifted a little lower in quiet overnight trade but appears to have steadied around 1.38 ahead of the North American open. Trends continue to reflect the broader tone of the USD, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Energy prices lag broader commodity gains

"The Bloomberg Commodity Index reached a three-year high yesterday. We commented a month or so ago on the potential for commodity price gains to break out of their trading range and accelerate while noting that FX/commodity correlations were weak. They remain so. Canadian terms of trade are not responding to the rise in overall commodity prices in the way that they have historically mainly because energy prices are not rising with the broader commodity complex.

"President Trump’s comments on Venezuela handing over 30-50mn barrels of oil are keeping prices depressed today, whether than claim is realistic or not. Still, significant additional gains in commodity prices—likely if the Fed allows the US economy to 'run hot'—should be helpful for commodity currencies generally in the months ahead and extend the CAD a moderate tailwind at least."

"USD/CAD closed near the high yesterday just above 1.3805 and gains extended a little further in overnight trade to sustain the USD rebound from the Dec 26th low. We still feel that there is firm resistance to a further USD advance in the low 1.38 zone but a sustained push through resistance at 1.3820 may see USD gains extend to 1.3880/00. USD support is 1.3780/85 and 1.3750."