Seasonality risks further strength in coming weeks – Scotiabank

Rooney’s pressure to correct continues to boil over. Scotiabank economists analyze the USD/CAD outlook.

Risk leaning towards slightly softer CAD

USD/CAD still appears slightly undervalued compared to the current equilibrium estimate (1.3486).

Somewhat tight spreads are helping CAD, and today’s rebound in crude oil prices is positive for CAD. However, soft commodities and loose terms of trade generally work against CAD at the same time. These factors are tilting risks slightly (at least) towards softer CAD.

Seasonality (January is the second-best month of the year for USDCAD in terms of average monthly returns since the 1990s) also risks further strength in the USD in the coming weeks.