The Canadian Dollar (CAD) is steady to slightly lower to start the week. CAD sentiment remains soft amid trade headwinds and anxiety over the risk backdrop, Scotiabank's FX strategists Shaun Osborne and Eric Theoret report.

Trade and risk backdrop remain a drag

"These concerns overshadowed CAD-positive developments last week. Sliding US yields should perhaps have helped nudge the USD somewhat lower at least as short-term US/Canada swap spreads narrowed significantly in the CAD’s favour."

"Failure to respond to the more supportive rate backdrop underlines the CAD’s lack of broader appeal for investors currently and leaves spot trading well above our estimated fair value (1.3940). External drivers will remain the primary influence on the CAD in the short run. There are no major data releases from Canada ahead of Friday’s September and Q3 GDP data."

"Technical signals remain somewhat mixed for USD/CAD. The five-month USD bull channel remains intact and trend momentum signals are bullish but relatively weak on the daily DMI study but USD gains have only made reluctant progress above 1.41 and there is still firm resistance in the mid/upper 1.41 zone. Technical risks are tilted towards a test of these points but perhaps not that much higher for the moment. Support is 1.4015/20 (40-day MA) and 1.3970 (Tuesday’s low)."