The Canadian Dollar (CAD) has weakened against a stronger US Dollar (USD), according to Scotiabank’s Chief FX Strategist Shaun Osborne. A recent tariff announcement has temporarily idled 6,000 auto workers at Stellantis, impacting the domestic economy.
The fair value estimate for USD/CAD has dropped below 1.40 for the first time since November. This shift may restrict the USD’s strength to around the 1.4250 level for the time being.
Bearish Technical Outlook
Despite a slight daily increase in the USD, its technical outlook has become bearish, limiting its capacity to hold gains. Key resistance levels are identified between 1.4240/50, extending up to 1.4400/20.
We’re observing a clear loss of momentum in the broader uptrend of USD/CAD, even though the recent bout of strength in the greenback has nudged the pair slightly higher. Osborne’s view reflects a direct response to softer macroeconomic signals and fundamental concerns in Canada, particularly from production halts tied to new trade burdens. The idling of thousands of workers doesn’t just ripple through automotive output—it alters assumptions about broader consumption and growth forecasts. That in itself feeds into expectations for the Bank of Canada’s upcoming decisions, which markets have started to price with increased caution.
The fair value estimate slipping below the 1.40 handle marks a real reset in sentiment. That assessment from Scotiabank implies that the pair had been trading rich in prior sessions, perhaps buoyed by safe-haven seeking in the USD or underappreciated risks in the CAD. As the market finds better balance, the pair’s ability to stretch back toward 1.4250 could meet firmer resistance than earlier in the quarter.
Technically, the structure suggests the rally is running out of steam. Lower highs on the daily chart and fading momentum indicators point to stretched positioning. Traders who’ve been riding the bullish trend might start unwinding or tighten stops aggressively, especially around 1.4240 to 1.4250, where historical supply has emerged. That zone marks the upper boundary of what we now see as a heavy ceiling. If pressure builds towards that limit without a catalyst, we’d expect exhaustion to follow—possibly leading to a sharper retracement.
Macro Economic Factors
For derivative positions, this is where probabilities start to lean. If the USD can’t overcome those resistance levels consistently and volume thins around 1.43 or higher, options traders may begin pricing in more downside protection. Implied vols are already reflecting wider tails this week, and that tends to coincide with positioning shifts or uncertainty over directionality. It’s worth taking note of skew widening near those upper bands.
There’s a wider macro backdrop here too. Sticky inflation prints in the US have given the dollar moments of strength, but if we see softer CPI or employment data in the coming fortnight, it’s going to test dollar bulls’ conviction. Meanwhile, in Canada, wage and housing data will remain closely watched. Any dovish signals from domestic policymakers—especially when local production is stalling—might amp up rate cut speculation.
We’re also watching flows in oil markets rather closely. While CAD correlation to crude isn’t as tight as it once was, surges or dips still bleed into sentiment around the loonie. A reopening of idle production or better receipts in manufacturing could offer the CAD a floor, particularly if USD fails to break higher.
In terms of strategy, medium-dated call spreads for USD/CAD with caps near the 1.43 level appear increasingly ill-suited in the short-term. They may demand rebalancing toward lower deltas or even shifting toward put spreads if rejection plays out the way recent price action suggests.
Overall, we anticipate more two-way movement, as short-term levels are being tested but not convincingly breached. That gives us the kind of tactical set-up where flexibility outweighs firm directional bets. Watch the reaction around key Canadian data releases, as those may inflect sentiment more starkly than in prior cycles, due to recent disruptions.
