National Bank of Canada (NBC) expects USD/CAD to remain broadly range-bound, with recent moves reflecting shifting expectations for Federal Reserve and Bank of Canada policy. The bank notes that softer US data and a more cautious Fed could cap Dollar strength, while Canadian fundamentals and oil prices may limit sustained CAD weakness over the coming months.

USD/CAD seen broadly range-bound

"We continue to see USD/CAD trading in a broad range over the coming months, with neither the US Dollar nor the Canadian Dollar showing a clear catalyst for a sustained trend at this stage."

"While softer US data and a more cautious Fed stance could prevent a significant appreciation of the greenback, we also believe that lingering concerns about global growth and commodity demand will limit the extent of any Canadian Dollar outperformance."

"Our baseline scenario assumes that USD/CAD will oscillate within its recent trading band, with upside risks emerging if US economic resilience forces markets to further scale back Fed easing expectations, and downside risks materializing if global risk sentiment improves and oil prices remain supported."

"As long as USD/CAD holds below the upper end of its recent range, we would be reluctant to chase the pair higher, preferring instead to look for opportunities to fade rallies toward resistance levels identified by our technical analysis team."

"Conversely, a sustained break below the lower bound of the range would be needed to signal that a more durable Canadian Dollar appreciation cycle is underway, something that would likely require a combination of stronger domestic data and a more pronounced shift in global risk appetite."

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