The Canadian Dollar (CAD) is steady, up fractionally vs. the US Dollar (USD) as it trades in a tight consolidation range following its decline from late December. The recovery in oil prices is important and is offering the CAD some fundamental support. Interest rate differentials are also showing signs of a turn, reversing lower to fade their recent (CAD-negative) widening over the past week or so, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD/CAD rally stalls below key technical resistance

"Our FV assessment for USDCAD is reflecting these developments and appears to be rolling over, in tandem with both spreads (narrower) and oil (higher). Or FV assessment is currently at 1.3823. Near-term domestic risk appears to be limited ahead of Thursday’s existing home sales and manufacturing sales data, and there are no BoC speeches currently scheduled ahead of the next rate decision (and MPR release) on January 28. We are neutral/bullish CAD noting that seasonal trends typically turn bullish for the currency toward the end of January."

"USD/CAD’s rally looks to have faltered above several key technical levels including trend resistance around the 50 day MA (1.3887), the 38.2% retracement of the June/Nov rally, as well as the psychologically important 1.39 level. Momentum is marginally bullish however the RSI appears to be fading from its modest 60+ highs and is quickly fading back to the neutral threshold at 50."

"Downside levels include the midpoint of the June/Nov range in the mid-1.38s, around the 200 day MA at 1.3838, and finally the 61.8% retracement of the June/Nov rally in the upper 1.37s. We are neutral/bearish targeting near-term weakness toward 1.3820 and see a near-term range bound between 1.3820 and 1.3920."