Scotiabank says USD/CAD is trading near equilibrium around 1.3870, with the Canadian dollar supported by narrower front-end spreads and firm crude prices. The bank’s fair value estimate for spot has edged down to 1.3843, while the currency is described as a marginal outperformer in the G10 bloc despite softer global equities and a mild rebound in the US dollar. Markets appear relaxed about the approaching US tariff deadline, which could impose 50% duties on a small set of Canadian exports, as talks continue but are reportedly stalled over autos.
On the technical side, Scotiabank characterises USD/CAD as in a strong bearish trend. A rebound from the 200-day moving average at 1.3848 may interrupt the decline in the near term, but the bank expects selling interest to re-emerge towards 1.39. It sees downside risk towards 1.3817, defined as the 61.8% retracement of the May–June rise, with the 1.35–1.37 area framed as a potential deeper target; resistance is placed at 1.4000/25, alongside bearish alignment across intraday, daily and weekly DMI oscillators.
Bearish Outlook and Trading Strategy
We are advising derivative traders to prepare for a stronger Canadian Dollar in the coming weeks as the USD/CAD pair faces heavy downward pressure. With the exchange rate hovering near 1.3870, we recommend establishing short positions on any minor US Dollar rebounds. We expect firm selling interest to cap any US Dollar gains near the 1.3900 mark, which should pave the way for a deeper decline.
Our bearish outlook is backed by shifting fundamentals, particularly as the yield spread between US and Canadian 2-year government bonds has narrowed to around 45 basis points. Additionally, the Canadian Dollar is finding solid support from the energy sector, where global crude prices remain resilient with Brent crude trading near $80 a barrel. These factors have dragged our estimated fair value for USD/CAD down to 1.3843, suggesting the spot rate has room to fall.
Options Positioning and Risk Management
To capitalize on this trend, options traders should consider buying put options or utilizing bear put spreads targeting the 1.3817 support level, with a secondary target in the 1.3500 to 1.3700 range. Current options pricing shows that implied volatility is relatively low, making long put strategies an affordable way to position for a downward breakout. To protect these positions, we recommend placing buy-stops or buying protective call options just above the strong resistance zone at 1.4000 to 1.4025.
Although tomorrow’s tariff deadline introduces some headline risk regarding potential 50% import taxes on Canadian goods, the currency’s stability shows investors are largely unconcerned. High-level political talks are already underway to resolve these trade disputes, and historically, these tensions result in temporary market noise rather than long-term trend reversals. Consequently, we view any sudden, tariff-induced spikes in USD/CAD as premium opportunities to buy cheaper Canadian Dollar call options.
