USD/CAD technicals point to further gains - Scotiabank

Eric Theoret, Strategist at Scotiabank, notes that USD/CAD short-term technicals remain bullish with sustained gains toward 1.3250 expected. 

Key quotes

“CAD is weak, underperforming in tandem with AUD, JPY and GBP in an environment of renewed USD strength. The broader tone remains dominant as Monday’s impressive risk rally is faded in favor of renewed risk aversion. CAD is vulnerable. Oil prices are once again weakening, and near-term fundamental risks are limited in the absence of either domestic or U.S. releases scheduled through Tuesday’s NA session.”

“The 2Y U.S-Canada yield spread is steady just below 20bpts and we note the risk surrounding BoC Sr. Dep. Gov. Wilkins speech on Wednesday in London, scheduled for 7:05am ET (text released at 6:50am ET). Wilkins’ appearance presents downside risk to CAD as we note last week’s turn in the BoC tone with a dovish ‘tilt’ to the outlook for inflation. Remain bearish.”

“USDCAD short-term technicals: bullish—USD/CAD is rallying from Monday’s close, flirting with 1.31 with a violation of the shooting star candle formed below 1.3050. Momentum signals are modestly bullish and the RSI at 56 leaves ample room for further upside. We look to sustained gains through 1.3120 toward 1.32 and the late July highs around 1.3250. Near-term declines below 1.3050 are likely to be limited.”