CAD gains stalled in low/mid 1.37s ahead of GDP data – Scotiabank

Canadian Dollar (CAD) gains have stalled in the low/mid-1.37 zone, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Intraday price action indicates a minor base

"Spot is little changed on the session, however, leaving the CAD as one of the better-performing major currencies over the week at this point. The CAD remains undervalued, based on our fair value model, which estimates spot equilibrium at 1.3586. Spot’s estimated fair value dipper briefly under 1.36 in early July but has not been consistently below the 1.36 point in close to a year. Narrower spreads, reflecting lower US short-term rates, and some improvement in commodities/terms of trade are helping lift the CAD."

"Canadian GDP at 8.30ET is forecast to fall 0.7% (Q/Q, SAAR—Scotia at –0.3%). June industry-level GDP is expected to rise a measly 0.1% for a 1.3% advance in the year. Canadian GDP is lagging US growth amid tariff headwinds but the Q2 data is likely to be better than the Bank of Canada’s forecast of –1.5% (Q/Q, SAAR) for the quarter. Steady spot losses through mid-week have stalled just below the 40-day MA (1.3755 today)."

"Intraday price action indicates a minor base may have been established overnight after the USD rebounded from the 1.3735/40 area, establishing a minor bull 'hammer' pattern on the 6-hour chart. This may set the market up for a rebound but the USD is liable to run into firm resistance in the upper 1.37/ low 1.38 range. Trend strength indicates are bearish on the intraday study but neutral on the daily and weekly measures, suggesting choppy range trading, may lie ahead."