The Canadian Dollar (CAD) is little changed on the day, with spot holding gains towards the 1.41 area yesterday amid the US equity market sell-off, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

CAD remains well below fair value

"Weak risk sentiment accounts for the CAD’s weak performance, it would appear. US/Canada short-term swap spreads have narrowed sharply (nearly 20bps) since the start of the month, but that has not helped the CAD at all and it finds itself trading well below our estimated fair value (1.3929). Spot is likely to remain a slave to external sentiment in the absence of a stronger, domestic catalyst."

"Spot is consolidating on the day but the pattern of trade on the short-term charts suggests a pause in the uptrend rather than a stabilization or reversal at this stage. USD gains through 1.4080 tilt risks towards a retest of the mid-1.41 zone. Support is 1.4050/60 ahead of 1.3970/80."