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CANADA: Scotia See USDCAD Topside At 1.44 For Next Few Weeks

CANADA
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  • Scotia write that “markets are perhaps passing through the eye of the tariff storm”, with CAD vols “back to the sorts of levels that traded through mid-December—still well above recent lows but below the peaks seen over most of 2024.”
  • “Lower vols and calmer market conditions have coincided with USDCAD trading more in line with our high frequency fair value estimate (1.4238 today).”
  • “The potential lull (until April) in tariff threats may allow spot to settle into a trading range around the 1.42 zone.”
  • The significant negative rate spread to the US limits how much the CAD can improve, “even if tariff risks diminish significantly (I think the base may be around 1.40/1.41 still)”, although their longer-term fundamental fair value model sees USDCAD at about 1.40.
  • “The potential for a better than worst case outcome to tariff negotiations might mean that the CAD has seen the worst of the tariff volatility already with the early February push to 1.48. History suggests these sorts of short, sharp CAD declines tend to stabilize relatively quickly. The topside of the range for the next few weeks at least may be around the 1.44 point.”
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  • Scotia write that “markets are perhaps passing through the eye of the tariff storm”, with CAD vols “back to the sorts of levels that traded through mid-December—still well above recent lows but below the peaks seen over most of 2024.”
  • “Lower vols and calmer market conditions have coincided with USDCAD trading more in line with our high frequency fair value estimate (1.4238 today).”
  • “The potential lull (until April) in tariff threats may allow spot to settle into a trading range around the 1.42 zone.”
  • The significant negative rate spread to the US limits how much the CAD can improve, “even if tariff risks diminish significantly (I think the base may be around 1.40/1.41 still)”, although their longer-term fundamental fair value model sees USDCAD at about 1.40.
  • “The potential for a better than worst case outcome to tariff negotiations might mean that the CAD has seen the worst of the tariff volatility already with the early February push to 1.48. History suggests these sorts of short, sharp CAD declines tend to stabilize relatively quickly. The topside of the range for the next few weeks at least may be around the 1.44 point.”