Scotiabank strategists Shaun Osborne and Eric Theoret report that the Canadian Dollar (CAD) is trading flat against the US Dollar, with markets showing little reaction to Quebec’s provincial election. Political risks remain a medium-term headwind, with referendum concerns in Quebec and Alberta weighing on sentiment. Meanwhile, USD/CAD’s rally appears technically stretched, with bearish reversal signals and limited support seen between current levels and the 1.40 area.

Rally looks exhausted near 1.42

"The CAD is trading flat to the USD with markets offering no material reaction to domestic political developments and the result of the provincial election in Quebec."

"Risks for the CAD are two sided, as the minority win for the PQ has been delivered with the possibility of a governing majority with the Conservatives, however the medium-term risks are worrisome given the PQ leader’s promise to hold another secession referendum within his first four-year term – but after the end of the current US administration in order to avoid interference."

"The result heightens the importance and tightens the focus on the October 19 Alberta referendum, presenting a major sentiment related risk for the CAD. Risk reversals remain relatively muted at the moment."

"Bullish/neutral – the USD/CAD rally looks exhausted with a series of bearish reversal signals observed over the past several sessions. Shooting star doji’s are typically associated with bearish reversals, and the RSI looks extremely overbought around 80. USD/CAD has struggled above the mid-1.42s and we continue to see limited support between current levels and the psychologically important 1.40 level."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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