Scotiabank Warns USD/CAD Rally Running Out of Steam Near 1.4000

Scotiabank strategists say the US dollar's rally against the Canadian dollar is losing momentum. The pair touched 1.4000 this week, up from 1.3798 at the start of June and at levels not seen since late 2025. The strategists wrote in a note that the move may be overextended.

[USD/CAD](/markets/gold-surge-lifts-tsx-300-points-after-weak-us-jobs-data) has churned higher even as West Texas Intermediate crude climbed more than 5% over the same stretch. Normally that would lift the loonie, given Canada's export profile. The breakdown in that correlation is one reason Scotiabank sees the rally as fragile. They point to positioning and rate differentials as the real drivers now, not oil.

Federal Reserve expectations have shifted. Markets priced out two quarter-point cuts for 2025 after the May payrolls report and sticky services inflation data. The dollar absorbed that shift more than the Canadian dollar did. The Bank of Canada held its policy rate at 2.25% in June. Swaps imply a cut is not fully priced until October. That gap in rate expectations has kept the dollar bid, the strategists said. They argue the move has run ahead of the fundamental story.

Scotiabank's fair-value models show USD/CAD around 1.3750 based on current terms-of-trade and yield spreads. The spot price is about 250 pips above that estimate. That does not mean an immediate reversal – overshoots in FX markets persist. It does mean the risk/reward for new dollar longs is poor near 1.4000, the note said.