The Canadian Dollar remains weak against the US Dollar as USD/CAD moves higher, despite firm Canadian yields, steady crude prices, and a stable risk backdrop. Scotiabank’s fair value estimate for USD/CAD has edged back towards 1.35, at 1.3504.
The bank says USD/CAD looks overvalued again, returning towards the wider gap last seen in April. It also notes the pair is testing the 50% retracement level of the March 31 to May 1 fall from 1.3967 to 1.3550, which sits at 1.3758.
Usd Cad Near Term Technical Context
Scotiabank flags the risk of further near-term gains in USD/CAD as short-term trends turn more supportive for the US Dollar. It expects resistance near 1.3800 to 1.3815, with stronger resistance in the upper 1.38s to low 1.39s.
Support is placed at 1.3715 to 1.3725. The article states it was produced using an AI tool and checked by an editor.
We are seeing a familiar defensive tone in the Canadian dollar, with the USD/CAD pair pushing higher. Last year, we noted the US dollar’s overvaluation when the fair value estimate was near 1.35, a situation that is re-emerging today. This trend persists even when underlying factors should be supporting the loonie.
This upward pressure on USD/CAD is now being amplified by a widening policy divergence between the central banks. Recent Statistics Canada data shows April CPI cooling to 2.5%, increasing odds of a Bank of Canada rate cut in July, while stubborn US inflation figures keep the Federal Reserve on hold. The current two-year yield spread between US and Canadian bonds has consequently widened to over 60 basis points in favor of the US dollar.
Options Strategies For A Higher Usd Cad
Given the short-term bullish trend for the US dollar, buying USD/CAD call options with strike prices above the current support of 1.3725 could be a prudent move. These options would allow traders to profit from a potential squeeze higher towards the 1.3800/15 resistance area we identified last year. The limited upfront cost of an option provides upside exposure while defining downside risk.
For a more cost-effective strategy, consider a bull call spread by buying a call at a lower strike and selling another at a higher strike, such as 1.3850. This can capitalize on the move toward the upper resistance levels while reducing the premium paid. It aligns with the view that a firmer technical block on dollar gains will likely emerge in the upper 1.38s.
A key factor that has shifted since our analysis in 2025 is the price of crude oil, which is no longer as firm a support for the loonie. WTI crude has recently dipped below $78 a barrel amid concerns about global demand, removing a significant pillar of strength for the Canadian dollar. This makes the CAD even more vulnerable to a stronger US dollar.
