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USD/CAD climbs to highest level since July as yield gap widens
The US 2-year yield is near 4.9% versus about 3.4% in Canada, keeping the USD supported despite higher oil prices.
USD/CAD extended its rally on Monday as expectations diverged between the Federal Reserve and the Bank of Canada, leaving the US Dollar favored over the commodity-linked Canadian Dollar, according to FXStreet. The pair traded around 1.4165, its highest level since July 13.
FXStreet also linked CAD weakness to a widening US-Canada yield gap, with the US 2-year Treasury yield near 4.90% versus about 3.37% for Canada. The gap was similarly wide on the 10-year side, with US Treasuries around 5.21% and Canadian government bonds near 3.96%.
Oil prices rebounded on traders’ reaction to a setback in US-Iran talks, which FXStreet said provided some offset for CAD. However, USD strength outweighed that support as the Canadian dollar had already fallen more than 2% so far this month.
The outlet noted the Fed’s recent stance, saying the central bank raised interest rates by 25 basis points at its September 15 to 16 meeting, bringing the federal funds rate to 3.75% to 4.00% and signaling that further tightening may be needed to return inflation to the 2% target. FXStreet cited hawkish comments as an additional driver, though the provided text cuts off after that point.