The Canadian Dollar (CAD) shows only mild weakness after fresh headlines on a possible USMCA withdrawal, but persistent long-term trade uncertainty continues to cap gains. Despite supportive risk sentiment and narrower spreads, USD/CAD remains stuck near 1.40, with bearish technical signals unfulfilled as key support holds at 1.3940, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Trade uncertainty keeps pressure on Canada

"Politico reports that the US Trade Representative said President Trump could withdraw from USMCA next year. The CAD slipped very fractionally on the headline but it was more of a shrug; the threat of withdrawal has been lingering over the trade agreement for some time. Withdrawal would not be straightforward as Congress would have to repeal the relevant legislation but for Canada—and Mexico—the threat maintains an uncomfortably high level of uncertainty about trade relations in the longer run."

"The CAD is a marginal underperformer on the session, with the CAD finding progress below 1.40 hard to come by despite some marginal improvement in CAD-supportive factors (positive risk mood, spreads maintaining their recent narrowing) which have nudged our fair value estimate down to 1.3862."

"The CAD has failed to leverage the USD-bearish breakdown below the bear flag pattern which formed on the short-term charts over the turn of the week. That bearish signal remains valid (for a push lower towards the high 1.38s) but so far, USD losses have held near the late Nov low (now key short-term support) at 1.3940. The USD has, however, failed to progress much above 1.3970/75 and still faces firm resistance in the 1.4010/20 zone."