The Canadian Dollar (CAD) remained unchanged on Thursday, showing only a small amount of persistent weakness against the US dollar (USD), according to Scotiabank Chief FX Strategist, Shaun Osborne. In terms of where the spot rate currently sits, we are close to Scotiabank’s fair value estimate of 1.3845 – which is good for CAD investors given this very slowly improving sentiment for the CAD – investor sentiment is now non-bearish (probably bullish) for CAD given the apparent improving view on the long-term strength of the USD.
USD/CAD Risk Reversals Signal Unusual Investor Demand
Risk reversal pricing—used by traders to gauge market sentiment—continues to shift in favor of CAD strength. Osborne notes that 3-month USD/CAD risk reversals are now trading at 24 basis points in favor of puts over calls, signaling rising demand for downside protection in the USD. This is the largest premium for USD puts since 2009, a strong indicator that market participants are preparing for more downside in USD/CAD.
Other timeframes show similar investor behavior, suggesting broad-based bearish sentiment on the USD. While risk reversals in pairs like EUR/USD and GBP/USD have already reflected this trend, CAD is now catching up quickly. This sharp movement underlines how sentiment is pivoting more decisively toward Canadian Dollar strength.
BoC and Government Statements Could Shape Near-Term Direction
Later today, Bank of Canada Governor Tiff Macklem and Finance Minister François-Philippe Champagne are scheduled to hold a press conference following the Banff G7 meeting. While the focus will be on global economic discussions, investors will watch closely for comments on inflation and interest rates.
April’s higher core inflation has reduced the chances of a rate cut in June. Whether Governor Macklem chooses to address the short-term rate outlook remains uncertain. According to Osborne, if Macklem avoids commenting on rates, markets could further scale back expectations of near-term easing.
Bearish Bias for USD/CAD
From a technical perspective, USD/CAD shows signs of stalling after a minor uptick from its recent intraday low above 1.38. Scotiabank’s analysis notes that momentum on the intraday, daily, and almost weekly charts is tilting bearish for the USD.
Current resistance is expected around the 1.39 area, which previously acted as support. If the pair fails to break above this level, pressure may build toward the 1.3745–1.3750 support zone. A breakdown below that region could accelerate losses in the coming weeks.
Conclusion
While the Canadian Dollar remains stable for now, undercurrents in risk pricing and technical indicators point toward a more bullish trend for CAD. With risk reversals hitting levels not seen in over a decade and USD price action turning bearish, Scotiabank’s outlook suggests the CAD may soon see broader support, particularly if Governor Macklem refrains from signaling any immediate policy easing.
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