The Canadian Dollar (CAD) is extending its steady outperformance, backed by supportive rate differentials and a weakening US Dollar (USD) trend. While stretched short-term signals suggest a brief pause or rebound is possible, technicals still favor further downside toward the 1.35–1.36 region, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD trend turns bearish but near-term bounce possible

"The CAD is maintaining a marginal gain on the session to trade at its strongest level since Sep against the USD. A third net weekly gain for the CAD is its best performance since Apr. Spreads remain supportive of the CAD’s firmer undertone and we think the outlook for relative monetary policy will remain a positive driver for the CAD moving forward."

"A weekly close below 1.3769 (61.8% retracement of the H2 USD rally) will help keep broader focus on the downside and strengthen the risk of a push back to 1.35/1.36 in the next few weeks. Trend momentum oscillators are aligning bearishly for the USD but the short-term studies are looking a little stretched which could mean the USD slide steadies or even reverses a little before the broader bear trend resumes."

"That alignment of bearish trend momentum oscillators should, however, mean that USD losses are limited in terms of scale and duration and will offer USD sellers an opportunity to fade gains. Resistance is 1.3850/75 and 1.3900/40."