CAD extending Wednesday's gains - Scotiabank

The Canadian Dollar (CAD) is nosing ahead this morning, extending yesterday's gains through the upper 1.37s and staking a claim on being one of the better-performing G10 currencies on the week so far, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

US/Canada 2Y yield spread pushes to fresh low w/ FV at 1.3606

"Sliding US short-term yields, with the US 2Y bond yield back to the low seen in April, and narrowing spreads (the 2Y US/Canada swap spread has dipped to just over 80bps, the narrowest since last October), account for some of the improvement in the CAD at least--and it may have further to go as the CAD remains undervalued (by our measure of the CAD's estimated short-term equilibrium)."

"Out fair value estimate sits at 1.3606 currently. Spot losses are extending below the 100-day MA (which has represented moderate support/resistance for the USD in the recent past) as USD losses from last Friday's bearish outside range reversal extend."

"Loss of support around 1.3750 (40-day MA currently) in the short run would be a more meaningful sign of short-term CAD strength and point to USD/CAD losses extending towards the upper 1.36s--the base of the broader consolidation range in place since early July. Resistance is 1.3800/15."