The Canadian Dollar (CAD) is a little lower against the generally firmer US Dollar (USD), Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Spot deviation from FV grows

"Factors influencing the CAD have weakened marginally so far this week but the CAD’s losses are running quite significantly ahead of where fundamental drivers suggest the spot rate should be. According to our fair value estimate, equilibrium sits at 1.3634 today, leaving spot more than one standard deviation above fair value."

"The divergence is nearing the relatively extreme “stretch” seen late last month. Spot liquidity has not been great this week and appears to remain relatively poor in early dealing today. Canada reports trade data at 8.30ET; another large trade deficit is expected for July. The street is looking for a CAD5.3bn shortfall.

"Spot gains through the low 1.38 zone and— tentatively—above noted resistance at 1.3815 leave the CAD vulnerable to a little more softness in the short run. USD/CAD developed a minor bull pennant consolidation earlier in the week on the intraday chart and the USD’s push through the ceiling of the pattern earlier today implies upside potential in spot to the 1.3850 area. There is a fair amount of short-term congestion on the hourly chart between 1.3825/75, however, which may slow or even curb USD gains. USD support is 1.3795/00."