Canadian Dollar Bullish Structure Points to 1.35 Against US Dollar, Says Scotiabank

Scotiabank’s foreign exchange strategists see a bullish structure for the Canadian Dollar (CAD) against the US Dollar (USD), with the potential to reach the 1.35 handle in the near term, according to a recent note. The bank’s analysis points to a constructive technical outlook for the loonie, suggesting further downside for USD/CAD as the pair trades below key resistance levels.

Scotiabank’s Technical Outlook for USD/CAD

Scotiabank’s currency strategists have identified a bullish setup for the Canadian dollar, which implies a move toward the 1.35 region in the USD/CAD exchange rate. This assessment is based on the pair’s failure to sustain upward momentum and the formation of lower highs on the daily chart, indicating that sellers are in control. The bank notes that as long as USD/CAD remains below the 1.3650–1.3700 zone, the path of least resistance is lower, with the 1.35 area acting as the next major support level.

Key Levels and Market Implications

For traders and investors, the 1.35 level is a significant psychological and technical milestone. A break below this level could open the door for further CAD strength, potentially targeting the 1.34 region. Conversely, a failure to break lower might signal a consolidation phase. Scotiabank’s analysis underscores the importance of monitoring these levels for potential entry and exit points, especially for those with exposure to USD/CAD through trade, investment, or remittances.

What This Means for Currency Markets

The bullish CAD outlook is not just a technical observation; it reflects broader market dynamics, including commodity prices, interest rate differentials, and global risk sentiment. Canada’s economy is closely tied to oil prices, and any sustained strength in crude can bolster the loonie. Additionally, the Bank of Canada’s monetary policy stance relative to the Federal Reserve plays a crucial role. A more hawkish BoC or a less dovish Fed could accelerate the move toward 1.35.

Context and Recent Performance

Over the past few months, USD/CAD has traded in a range, with the pair showing resilience above the 1.35 level but failing to make new highs. The recent shift in Scotiabank’s outlook aligns with a broader technical pattern observed by other analysts, though opinions vary on the timing and strength of the move. As of this week, the pair is hovering near 1.36, with market participants closely watching upcoming economic data, including Canadian GDP and US employment figures, for directional cues.

Conclusion

Scotiabank’s bullish structure on the Canadian dollar against the US dollar points to a potential test of the 1.35 handle, a level that carries both technical and psychological significance. While the outlook is constructive for CAD, traders should remain mindful of evolving economic indicators and central bank communications that could alter the trajectory. For now, the technical setup suggests that USD/CAD may continue to drift lower, provided key resistance levels hold.

FAQs

Q1: What does a bullish structure for the Canadian dollar mean?
A bullish structure indicates that the Canadian dollar is expected to strengthen against the US dollar, meaning USD/CAD would decline. In this context, Scotiabank sees the pair moving toward the 1.35 level, which is lower than current levels around 1.36.

Q2: What is the significance of the 1.35 level in USD/CAD?
The 1.35 level is a major support area and a psychological milestone. A break below it could signal further CAD strength, while a bounce could indicate a period of consolidation. Traders watch this level closely for potential trade setups.

Q3: What factors could influence the Canadian dollar’s move toward 1.35?
Key factors include oil prices, interest rate differentials between the Bank of Canada and the Federal Reserve, and global risk sentiment. Economic data releases from both Canada and the US can also impact the pair’s direction.