CAD steadies as spreads stabilize

The Canadian Dollar (CAD) is steady. The BoC duly cut the policy rate 50bps yesterday and signaled that the pace of policy easing would moderate, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Spreads stabilize after BoC cut

“Aggressive rate cuts over the past few months leave the Overnight Target Rate at 3.25%, right on the upper range of the 2.25-3.25% zone the Bank has indicated as the nominal neutral rate band. Rates are still expected to ease but swaps are pricing in just 50bps of cuts over H1 2025. Assuming a 25bps cut from the Fed next week, the policy spread looks likely to stabilize around the 125bps point now.”

“That may see some (limited) backtracking in term spreads that have widened significantly on the Fed/BoC policy divergence and could give the CAD a temporary toe-hold against the USD. We expect the policy gap will narrow significantly through 2026, which should eventually feed through to term spreads and the forward discount—but perhaps not just yet. Regardless, tariff/trade threats remain a significant risk for the CAD and it’s too soon to anticipate a sustained turnaround in the weak CAD trend.”

“Estimated spot fair value sits at 1.4109 currently. CAD has stopped falling against the USD over the past two sessions but there are scant signs from the charts that a major CAD recovery is looming. Short-term trend momentum has moderated but remains bullishly oriented for the USD. Longer run signals are firmly USD bullish. Intraday USD support sits at 1.4095/00, with a drop back to the 1.40 area perhaps developing below there. Resistance remains 1.42.”

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