Loonie’s corrective pressures continue to simmer. Economists at Scotiabank analyze USD/CAD outlook.
Risks tilted towards a slightly softer CAD
USD/CAD still looks a bit undervalued, relative to our equilibrium estimate (1.3486) currently.
Slightly narrower spreads are pro-CAD and a rebound in crude is a plus for CAD today. But generally, soft commodities and loose terms of trade are working against CAD at the same time. These factors slightly (at least) tilt the risk toward mild CAD.
Seasonality (January is the second-best month of the year for USDCAD in terms of average monthly returns since the 1990s) also leans towards the risk of some additional USD strength in the next few weeks.
