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USD/CAD rallies to its highest level since mid-July

The pair is near 1.4113, up nearly 2% this month, as widening US-Canada yield spreads support the US dollar.

Reported · Written up by our desk · Major Pairs

The US dollar extended gains against the Canadian dollar, with USD/CAD rising to its highest level since mid-July, FXStreet reported. Over the past 12 trading days, the pair has logged only one daily decline, reflecting a growing divergence in the US Federal Reserve and Canada’s Bank of Canada policy outlooks.

At the time of writing, USD/CAD traded around 1.4113, up nearly 2% so far this month. Canada’s Retail Sales data offered limited support for the CAD, with headline sales down 0.7% month over month in July, and sales excluding automobiles also down 0.7%.

FXStreet attributed the rally largely to the widening gap in short term US and Canadian bond yields. The two-year US Treasury yield was around 4.89%, slightly below Wednesday’s peak near 4.94%, while Canada’s two-year government bond yield stood near 3.40%, leaving a roughly 150 basis point gap in favor of the US dollar.

The story also cited rising expectations for additional Fed tightening, supported by higher US yields across the curve. US policy remains elevated after the Fed’s 25 basis point increase last week to a 3.75% to 4.00% range, while the BoC kept its policy rate unchanged at 2.25% for a seventh consecutive meeting, with inflation excluding gasoline at 2.2% and core measures close to 2% in July, according to FXStreet.

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