US Dollar-Canadian Dollar risks remain tilted lower as Scotiabank sees fair value just below 1.40 and says a break of 1.3970/80 could extend CAD gains.
The Canadian Dollar strengthened into the weekend, pulling the USD/CAD exchange rate down to around 1.3940 after another soft session for the US Dollar.
The pair is now almost 1.9% below its late-July high and has fallen for four of the past five sessions.
Scotiabank thinks the underlying picture has improved enough to justify a mildly stronger CAD bias.
“Factors driving the CAD are leaning a little more positive, nudging our fair value estimate for spot fractionally under 1.40 this morning (1.3994),” the bank said.
That fits a broader improvement Scotiabank has been tracking since late June and early July.
The interesting wrinkle is positioning.
“The trend contrasts somewhat with the run up in bearish CAD positioning evident in recent CFTC data,” Scotiabank said, adding that sentiment may be “potentially exposed to a reversal in the event of a CAD-positive (or USD-negative) shock”.
In other words, the market has built a sizeable bearish CAD position at the same time that the fundamental backdrop has started to look a little less negative.
USD/CAD has broken lower from the 1.41 area and ended the week close to the bottom of its one-month range.
Canada’s latest labour-market data are the next obvious test.
Scotiabank had looked for a 20,000 rise in employment, unchanged unemployment at 6.5% and slightly softer wage growth.
The bank also flagged hours worked as worth watching for clues on whether the economy is regaining momentum through mid-year.
USD/CAD Outlook: 1.3970/80 Break Keeps the Bias Lower
Scotiabank’s technical view remains bearish.
“There is no change in the CAD’s technical position,” the bank said. “The broader technical set up continues to lean USD-bearish after the negative technical close for funds on the week through last Friday.”
The immediate area to watch is 1.3970/80.
“The CAD still needs to secure a break under 1.3970/80 … to drive the next phase of gains,” Scotiabank said.
That break has now effectively occurred, with spot ending Friday at 1.3939.
Scotiabank’s preference is therefore to fade rallies rather than chase the Dollar higher.
“Technicals suggest fading moderate USD gains to the 1.41 zone.”
The latest bank-consensus survey is broadly consistent with a softer medium-term USD/CAD profile.
The Q3 median still sits near 1.40, while the centre of the distribution falls through 2027, even if individual bank forecasts remain widely dispersed.
The latest bank survey shows a wide spread of USD/CAD forecasts, but the median path drifts lower through 2027.
So Scotiabank’s call is not for a collapse in USD/CAD.
It is for the balance of risk to stay tilted towards a firmer Canadian Dollar while spot remains below 1.40 and bearish positioning leaves room for further short-covering.
Our currency coverage draws on live market data, official economic releases and published bank research.
