Saad Ullah
The CAD remains weak against the USD, as traders await the upcoming Bank of Canada decision. USD/CAD trades in a tight range, with potential resistance at 1.3940/50.
CAD Remains Weak Despite USD/CAD Consolidation
The Canadian Dollar (CAD) continues to show weakness, with slight consolidation against the USD. As of today, the USD/CAD is hovering around the mid-1.38s, showing a marginal improvement of 20 ticks from yesterday’s low, as noted by Scotiabank’s Chief FX Strategist, Shaun Osborne.
Despite the minor recovery, CAD is still facing broader challenges due to weak risk appetite and wider US-Canada spreads, which limit any significant gains. Traders are cautious ahead of the upcoming Bank of Canada (BoC) decision, with many expecting a policy rate cut.
The upcoming BoC decision scheduled for Wednesday has the markets reflecting on the possibility of a 50 basis point rate cut. However, analysts point out that the combination of previous rate cuts, the current weakness of the CAD, and uncertainties surrounding the US election could push policymakers towards a more moderate 25 basis point cut. This scenario adds further uncertainty to the CAD's immediate outlook, and the risk of further depreciation remains.
USD/CAD Maintains Tight Range as Markets Await Movement
As of today, the USD/CAD is holding steady in a narrow consolidation range. According to Scotiabank's Osborne, the spot is estimated at a fair value (FV) of 1.3863, with little movement observed so far. This could potentially be a positive sign for the CAD if the tight range continues through the entire session, suggesting some stabilization. However, the lack of volatility might also indicate the market is simply in a waiting phase ahead of the BoC announcement.
Technical indicators, such as oscillator signals, continue to flag that the USD is overbought. Osborne previously identified resistance for USD/CAD around the 1.3850 level. Despite this, unless the price signals turn USD-negative, there remains a significant risk that the USD/CAD could retest the 1.3940/50 level. On the downside, support remains at 1.3750.
Conclusion
As traders focus on the upcoming BoC decision and external factors like the US election, the Canadian Dollar remains weak and oversold. USD/CAD is expected to continue trading within a tight range, with potential for volatility based on the BoC’s actions. Traders are advised to watch for any significant price signals, especially resistance levels near 1.3940/50 and support around 1.3750.
Saad Ullah
