Scotiabank’s Analyst Team notes the Canadian Dollar is modestly firmer versus the Dollar and leading G10 peers, echoing its earlier conflict-phase outperformance. They highlight narrowing yield spreads and a relatively muted Bank of Canada meeting as key drivers. Markets price about 60 bps of BoC tightening by year-end, leaving CAD sensitive to policy shifts, with fair value estimates near 1.34.

CAD leads G10 as policy repriced

"The CAD is entering Friday’s NA session with modest support against the USD and notable strength against all of the G10 currencies, exhibiting the singular traits that characterized much of its performance through the early phase of the US/Iran conflict."

"We continue to see critical CAD support (USDCAD resistance) at the lower bound of the local range, driven by a renewed narrowing in yield spreads."

"Markets are currently pricing about 60bpts of tightening by year end but very little for the next two meetings, leaving the CAD somewhat vulnerable to adjustment if the BoC were to follow the pacing currently signaled by the BoJ and ECB."

"In terms of our FV estimate, it has taken a renewed tumble to the low 1.34s at 1.3413, reflecting the latest narrowing in yield spreads."

"USDCAD looks to have once again failed at breaking the upper bound of the local range from late January, with a clear reinforcement of resistance in the mid-1.37s."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)