Scotiabank’s Analyst Team notes the Canadian Dollar (CAD) is slightly weaker versus the US Dollar (USD), extending losses to levels last seen in mid-April as wider US-Canada yield spreads weigh. The bank highlights elevated CAD/spread correlations and sees the move as somewhat extended, with risk of softer Fed expectations. Technically, USD/CAD trades above its 200-day moving average, with limited resistance before 1.3900 and support near 1.3750.

USD/CAD extends advance with firm spreads

"The CAD is entering Wednesday’s NA session with a fractional 0.1% decline vs. the USD as it extends its bear run to fresh local lows at levels last seen in mid April."

"The outlook for relative central bank policy has been a dominant driver of recent CAD weakness, as US-Canada yield spreads have widened in response to a softening in tightening expectations for the Bank of Canada alongside a shift in the outlook for the Fed with the latter moving from cuts to hikes."

"CAD/spread correlations are elevated, running at 0.89 on a rolling 21 day basis."

"We continue to see the move as being somewhat extended, and see risk in a renewed softening in Fed expectations."

"USD/CAD’s latest gains have cleared the 200 day MA (1.3812) trend level, and momentum is confirming with an RSI that continues to climb to fresh local highs into the upper 60s as it closes in on the overbought threshold at 70."

"The daily chart offers little in terms of near-term resistance ahead of the psychologically important 1.3900 level, and we continue to see support closer to the 50 day MA around 1.3750. We look to a near-term range bound between 1.3780 and 1.3880."

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