Rally shows exhaustion near 1.39 – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) is only slightly firmer versus the Dollar (USD) despite broad USD weakness, but sees scope for a meaningful CAD recovery after a 1.4% Q1 decline. They stress CAD undervaluation versus fair value at 1.3495 in USD/CAD and highlight a short‑term range around 1.3850–1.3950 as momentum indicators roll over.

CAD undervalued as range forms

“The CAD is entering Wednesday’s NA session with a fractional 0.1% gain vs. the USD, lagging its G10 peers in an environment of broad-based USD weakness.”

“Broader developments are dominating, opening up the potential for a meaningful recovery in the CAD following a disappointing 1.4% decline in Q1. Risk reversals are confirming the shift in broader market sentiment and fading the premium for protection against CAD weakness (USD/CAD upside).”

“We continue to highlight the CAD’s meaningful undervaluation to our assessment of its fundamental equilibrium estimate. Our FV for USD/CAD is currently at 1.3495, revealing a significant divergence to spot.”

“USD/CAD rally is showing signs of exhaustion with momentum pulling back from overbought levels as the RSI drifts back below 70. Tuesday’s candle chart reveals a bearish reversal signal—a ‘shooting star’ doji—at levels corresponding to the 61.8% retracement of the Sept 2024-Feb 2025 rally at 1.3944.”

“The drift below 1.3900 is important, and we see limited support ahead of 1.3850. We look to a near-term range bound between 1.3850 and 1.3950.”

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