The Bank of Canada (BoC) delivered a downbeat assessment of the outlook amid a “structural” shift in the economy resulting from US trade policies, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

Fed caution blunts BoC decision

"But, with monetary policy only able to help facilitate the economic adjustment and inflation expected essentially to remain on or close to target for the foreseeable future, it also signaled that that its rate cutting cycle is complete—barring significant new developments."

"Term yields firmed a little in response, lifting the CAD following the meeting, but gains reversed as the USD and US yields backed up following the FOMC. With little net improvement in spreads following the two central bank decisions, the CAD may drift a little more."

"Spot dipped briefly under 1.39 yesterday but the rebound back to the mid 1.39s leaves the CAD at risk of a technicallydriven squeeze back to the 1.40 area. Price has carved out a mini, inverse Head & Shoulders reversal on the very short-term chart; a USD advance through the 1.3965 neckline trigger would target a rise to 1.4025 into the end of the week."