USD\/CAD was trading near 1.4215, with Scotiabank describing a consolidation phase in which the Canadian Dollar kept a soft undertone despite a narrowing in front-end US\u2013Canada spreads over the past week. Trade uncertainty remains in focus after confirmation that the US would not renew the USMCA, extending uncertainty for Canadian and Mexican exporters, while the Bank of Canada\u2019s Q2 Business Outlook Survey was expected to capture some of that caution.<\/p>\n\n
Scotiabank said the Canadian Dollar still looks fundamentally cheap, but its undervaluation versus the bank\u2019s equilibrium estimate of 1.4141 has been tightening over the past month, suggesting limited upside. The bank also flagged the risk that a six-week USD rally is only pausing before another leg higher, with resistance seen in the 1.4250\/00 zone and support at 1.4150 and 1.4075\/80. It characterised the stance as neutral, adding that the USD remained extremely overbought on the daily RSI oscillator.<\/p>\n\n
Based on the current consolidation in USD\/CAD around 1.4215, we see a period of range-bound trading with a slight upward bias for the pair. The failure of the Canadian dollar to gain ground, despite narrower yield spreads, highlights an underlying weakness. This softness is directly linked to ongoing trade uncertainty following the formal non-renewal of the USMCA.<\/p>\n\n
The Bank of Canada\u2019s Business Outlook Survey, released this morning, confirmed our concerns, showing a notable dip in business sentiment with the future sales index falling to its lowest since the fourth quarter of 2025. This, combined with last week’s softer-than-expected jobs report which showed Canada adding only 15,000 jobs in June, contrasts sharply with the robust 210,000 jobs added in the U.S. These diverging economic indicators continue to support the US dollar over the loonie.<\/p>\n\n
For derivative traders, this environment suggests hedging against further CAD weakness is prudent. We believe Canadian exporters should consider buying USD call options with strikes around 1.4300 to protect against a potential breakout higher in the coming weeks. For those looking to capitalize on the range, selling volatility through strategies like an iron condor, with puts sold around 1.4050 and calls sold near 1.4300, could be effective.<\/p>\n\n
While the USD is technically overbought on the daily RSI, suggesting a pause, we view any dips toward the 1.4150 support level as buying opportunities. This situation is reminiscent of the 2017-2018 NAFTA renegotiation period, where prolonged uncertainty caused USD\/CAD to grind steadily higher despite periods of consolidation. The market\u2019s focus will now shift to the upcoming CPI data from both countries to gauge central bank policy divergence.<\/p>\n\n\n\n