Scotiabank believes the Canadian Dollar’s decline in May and June has likely reached its limit, with stronger economic indicators helping to improve sentiment towards the Loonie.
The bank noted that June’s employment report was generally supportive, even though most of the new jobs were part-time. An unexpected drop in the unemployment rate, faster wage growth and a further increase in hours worked suggest that economic momentum is strengthening after a weak start to the year.
According to Scotiabank, the downward trend seen in May and June now appears to have bottomed out.
However, the bank warned that the Canadian Dollar may find it difficult to extend its gains significantly unless expectations of further monetary tightening by the US Federal Reserve begin to weaken.
From a technical perspective, Scotiabank believes the US Dollar’s strong rally is losing momentum, although a clear bearish reversal has not yet been confirmed.
Сonclusion: Improving Canadian economic data suggests the Loonie’s recent sell-off may have ended. A sustained break below 1.4140–1.4150 could push USD/CAD towards 1.4075–1.4085, while 1.4250 remains the key resistance level.
