USD/CAD notched up a slightly lower low in the current down cycle yesterday and while the CAD is a little softer this morning, it is still bucking its usual trend of seasonal ambivalence in December, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

CAD weakness limited despite seasonal patterns

"Late year trends tend to be CAD-negative but, in broad terms, CAD losses typically even out in December (before losses resume in in the new year). The CAD weakens more often than it gains (but only marginally so) and average returns for the month are about as close to flat as you can get. Nov is the CAD’s worst month of the year while Apr (quite reliably) is the best. Despite the intraday spot gains, USD/CAD is (currently) trading just below our fair value estimate (1.3794) today."

"Scope for additional USD gains may be limited absent further bullish developments. There was nothing new on the monetary policy front from yesterday’s speech by Gov. Macklem. He reaffirmed that the benchmark rate at 2.25% was the appropriate level and that inflationary pressures appeared contained."

"USD gains from the intraday low yesterday are putting the short-term downtrend in funds under pressure. The USD selloff has looked a little stretched and a mild correction may develop above 1.3790/00 to the mid/upper 1.38s. Support is 1.3725/30."