Scotiabank Forecasts Canadian Dollar Strengthening Towards 1.35 Against US Dollar Amid Trade Progress

The Canadian Dollar is gaining ground driven by indications of trade progress between the US and Canada along with broad weakness in the US Dollar. Scotiabank technical analysis highlights further upside potential into the 1.35-1.37 range.

The Canadian Dollar (CAD) is experiencing upward momentum in foreign exchange markets, backed by a combination of broad US Dollar weakness and early signs of progress on trade negotiations between Canada and the US. Although intraday advances remain modest, the 0.3% gain achieved by the CAD trails only the New Zealand Dollar among major currencies. Traders and institutional investors are keeping a close watch on diplomatic developments between Ottawa and Washington for long-term currency direction.

Trade Concessions and Fair Value Dynamics
The tentative trade arrangement currently taking shape between the two North American nations offers potential relief for Canadian exports. Under the proposed terms, Canada is expected to receive exemptions on certain steel and aluminium tariffs alongside a reduction in automotive sector tariffs. However, final details of the agreement remain under negotiation, and the domestic political reception to concessions made by the Canadian government has yet to be fully tested. Spot market trading currently sits below the estimated fair value level of 1.3800, which continues its downward slope.

Technical Outlook Points to 1.35-1.37 Target Range
From a technical standpoint, Scotiabank foreign exchange analysts highlight sustained downward pressure on the US Dollar. The USD has pushed decisively under its key retracement support level at 1.3817. Technical indicators show a bearish alignment across intraday, daily, and weekly Directional Movement Index (DMI) oscillators, significantly curbing the potential for any robust USD rebound. Resistance for the pair has dropped to the 1.3825 to 1.3850 region, with chart analysis supporting further USD losses deeper into the 1.35 to 1.37 range.

US Treasury Surprise Liquidity Action
The broader currency market moves coincide with a notable shift in US fiscal policy execution. Departing from its scheduled operations at 12:32 GMT, the US Treasury Department announced an expansion of its liquidity support buyback operations. The department doubled the transaction ceiling for buybacks in the 10-year to 20-year and 20-year to 30-year maturity sectors from $2 billion per operation to at least $4 billion. This expanded policy takes effect on September 9 and will run through November 4. Following this surprise announcement, US Treasury yields stabilized, with the benchmark 10-year yield adjusting to 4.672% after a sharp pullback.

Major Forex Pair Movement
Weakness in the greenback has provided floor support for other major currency pairs. The British Pound (GBP/USD) maintained a solid position well above 1.3600, holding most of its gains after briefly pulling back from a six-month high above 1.3650 reached earlier in the session. Meanwhile, EUR/USD momentum cooled, trading flat below 1.1700 after touching a three-month high. The inability of the US Dollar to build momentum following the Treasury buyback expansion has limited downside risks for both European currencies.

Commodity Pressures and Cryptocurrency Rally
As US Treasury yields and the greenback found temporary stability, Gold (XAU/USD) experienced an intraday decline heading into the start of American trading hours. Conversely, digital assets extended their upward trend. Bitcoin (BTC) broke above the key $70,000 benchmark, boosting overall market sentiment. Ethereum (ETH) maintained a bullish stance above $2,200, while Ripple (XRP) demonstrated recovery momentum to trade above $1.15 as buyers retained control.

What this means for you
For Global Investors: US Dollar weakness and Treasury bond buybacks are impacting currency valuations, gold prices, and commodity trends.

In India: Shifts in major global currencies like USD, GBP, and EUR can influence import costs and overall foreign portfolio flows.

Questions & Answers

1. What target range has Scotiabank set for the Canadian Dollar?
Scotiabank projects the Canadian Dollar to move into the 1.35 to 1.37 range against the US Dollar.

2. Which sectors stand to benefit from the US-Canada trade developments?
The tentative trade understanding provides potential tariff relief for Canadian steel, aluminum, and auto exports.

3. What step did the US Treasury take regarding bond buybacks?
The US Treasury doubled its liquidity support buybacks for 10-20 year and 20-30 year bonds from $2 billion to at least $4 billion per operation.

4. How did Bitcoin perform during this market movement?
Bitcoin extended its gains to trade above the $70,000 threshold amid broad crypto market strength.

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