CAD extending Wednesday’s gains – Scotiabank

The Canadian Dollar (CAD) is nosing ahead this morning, extending yesterday’s gains through the upper 1.37s and staking a claim on being one of the better-performing G10 currencies on the week so far, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

US/Canada 2Y yield spread pushes to fresh low w/ FV at 1.3606

"Sliding US short-term yields, with the US 2Y bond yield back to the low seen in April, and narrowing spreads (the 2Y US/Canada swap spread has dipped to just over 80bps, the narrowest since last October), account for some of the improvement in the CAD at least—and it may have further to go as the CAD remains undervalued (by our measure of the CAD’s estimated short-term equilibrium)."

"Out fair value estimate sits at 1.3606 currently. Spot losses are extending below the 100-day MA (which has represented moderate support/resistance for the USD in the recent past) as USD losses from last Friday’s bearish outside range reversal extend."

"Loss of support around 1.3750 (40-day MA currently) in the short run would be a more meaningful sign of short-term CAD strength and point to USD/CAD losses extending towards the upper 1.36s—the base of the broader consolidation range in place since early July. Resistance is 1.3800/15."