Scotiabank strategists Shaun Osborne and Eric Theoret notes that the Canadian Dollar (CAD) is soft against the US Dollar (USD), with USD/CAD trading near fresh local highs in an environment of mild risk aversion linked to renewed US/Iran tensions. Wider US-Canada yield spreads and limited Bank of Canada (BoC) guidance are weighing on CAD, while markets price at least one 25bp BoC hike by October.

CAD pressured by yields and risk tone

"The CAD is soft, down a modest 0.2% vs. the USD and a mid-performer among the G10 currencies in an environment of mild risk aversion driven by renewed hostilities between the US and Iran."

"The broader tone is a headwind for the CAD, compounding recent fundamental weakness that has resulted from wider US-Canada yield spreads."

"Markets are pricing little chance of a hike for either the June 10 or July 15 meetings, but pricing at least one full 25bpt hike by October."

"Bullish—the rally continues as USDCAD clears fresh local highs in the upper 1.38s. Momentum is confirming and the RSI has now reached the overbought threshold at 70. "

"We see little resistance ahead of 1.3900 and see support around the 200 day MA at 1.3812. We look to a near-term range bound between 1.3800 and 1.3900."

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