The Canadian Dollar (CAD) is a clear underperformer on the session, slipping back through the low 1.37 area despite relatively limited movement in the USD elsewhere, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD underperforms on the day

“Fading Fed rate cut bets and something of a clamour for the BoC to cut rates aggressively later this month are driving swap spreads wider and supporting the USD. The 1Y swap spread jumped 10bps yesterday to near 80bps—a minor new cycle high as markets bet on more policy divergence between the BoC and Fed.”

“This looks a bit overdone to me and our fair value estimate for spot (while conceding some ground to a stronger USD this week) would seem to concur. Estimated equilibrium is 1.3648 today.”

“A seventh day of consecutive USD gains are driving spot deeper into the 1.36-1.38 congestion zone that may—eventually—slow the USD’s ascent. Underlying trends are bullish and that likely limits scope for USD corrections to the 1.3700/20 zone in the short run.”