Canadian Dollar: CAD favoured against US Dollar after break below 1.40 - Scotiabank

The Canadian Dollar (CAD) is holding steady against the US Dollar (USD) while gaining against other commodity currencies, with support coming from a modestly hawkish Bank of Canada (BoC) rate hike, according to Scotiabank strategists Shaun Osborne and Eric Theoret. As Governor Macklem’s tone helped yield spreads narrow, their fair value estimate for USD/CAD moved to just below 1.3980. On the technical front, support looks limited before the 1.3900/1.3920 zone following the pair’s break below 1.40.

How is BoC hawkishness supporting the Canadian Dollar?

"Comments from BoC Gov. Macklem reported by Bloomberg late Wednesday offered a relatively hawkish read, relative to a statement and press conference that had been somewhat more restrained."

"In any event, the BoC’s hike on Wednesday was delivered with a modestly hawkish message that ultimately delivered a slight boost in rate expectations across the curve."

"The BoC’s hawkishness has provided for a continued narrowing in yield spreads, dragging our FV to 1.3979."

"We see limited support ahead of the 1.3900/1.3920 area."

"Bearish – the renewed decline in USD/CAD has delivered a fresh break below 1.40 and opened up the possibility of a push below Friday’s local low in the mid/upper-1.39s. The RSI is clearly bearish and back below 40. We see limited support ahead of the 1.3900/1.3920 area."

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