The Canadian Dollar (CAD) is soft, trading defensively with a modest 0.1% decline against the US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

CAD is trading defensively ahead of retail sales

"The CAD’s post-BoC/Fed performance has been disappointing, reflecting a modest shift in the outlook for relative central bank policy that has been evident in the adverse moves in yield spreads. The 2Y US-Canada yield spread has resumed its recent widening trend, and appears vulnerable to a continued reassessment of both the Fed and BoC’s paths. Domestic risk is elevated as we look to Friday’s retail sales data."

"The bar is low, given expectations of a meaningful contraction in consumer spending in July. A modest surprise would lend the CAD some support, and offer stabilization into a week that offers no meaningful data releases ahead of the July GDP figures scheduled for next Friday. Our USD/CAD FV assessment has drifted slightly higher, reflecting wider spreads and lower oil prices, and is currently at 1.3640."

"USD/CAD’s bearish technicals have shifted to neutral, with a slight upward drift in the RSI toward the threshold at 50. USD/CAD has also delivered a clear break back above its 50 day MA (1.3777) trend level, and looks to have invalidated the potential head and shoulders pattern that we had identified as a possible reversal formation. The mid-1.37 area has been re-confirmed as an important level of support, and we look to a near-term range bound between 1.3750 and 1.3850."