Back to Markets
Forex▼ Bearish
Why Scotiabank Sees Canadian Dollar at 1.39
Scotiabank sees Canadian dollar weakness to 1.39 per USD as rate differentials widen and oil prices slip. Here's what drives the move.
Continue with
Scotiabank analysts have set a bearish bias on the Canadian Dollar against the US Dollar, targeting the USD/CAD pair at 1.39. The call comes as the loonie struggles with a widening rate differential and softer commodity prices. For traders positioning around this level, the key question is whether the grind to 1.39 accelerates or stalls.
The Bearish Call on USD/CAD
The simple read is that Scotiabank sees the Canadian Dollar weakening toward 1.39 per greenback. That level has acted as resistance in recent months. A sustained break above it would open the door to the 1.40 area. The better market read requires looking at the transmission mechanism.
USD/CAD is driven primarily by two forces: the Bank of Canada policy path and oil prices. The BoC has held its policy rate at 4.75% after cutting from 5.00% earlier this year. Markets are pricing in further easing as the Canadian economy slows. The US Federal Reserve is in no rush to cut, keeping the US dollar supported. The gap between US and Canadian yields – the rate differential – is the core driver of the bearish bias.
On the commodity side, West Texas Intermediate crude has slipped below $70 per barrel. Canada is a net oil exporter, so lower crude prices reduce the country's terms of trade and weaken the currency. The combination of a dovish BoC and soft oil creates a structural headwind for the Canadian Dollar.