The Canadian Dollar (CAD) remains near Friday’s closing level versus the US Dollar (USD), trading just below its estimated fair value of 1.3798. While short-term consolidation in USD losses is possible, the underlying trend favors further CAD strength, with resistance on moderate USD rebounds expected around 1.3850–1.3875, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD/CAD slightly below fair value amid mild CAD stretch

"The CAD is holding close to Friday’s closing rate versus the USD. Spot continues to trade a little below our estimated fair value (1.3798) but the stretch in the CAD’s valuation is mild and there remains ample leeway for fundamentally-driven strength to extend."

"We noted last week that a USD/CAD close below 1.3769 (61.8% retracement of the USD’s H2 rally) should indicate more USD losses towards 1.35/1.36 in the coming weeks. It was close but the CAD just failed to hold the necessary gain through 1.3769 into the weekend, however."

"And with the USD veering into oversold territory on the short-term oscillators, some consolidation in recent USD losses may be a risk in the short run. Given the strength of the underlying trend lower on the charts, we think scope for USD gains is limited, however. We expect firm resistance on moderate USD rebounds to the 1.3850/75 zone."