The Canadian Dollar (CAD) has experienced a near straight-line decline since early May, driven primarily by widening yield spreads between the US and Canada, according to Scotiabank strategists Shaun Osborne and Eric Theoret [1]. The USD/CAD pair has continued its upward trajectory, with the CAD losing ground daily 80% of the time since peaking at 1.3550 on May 1 [1].
Short-term technicals are described as neutral to bullish, with the recent push through the upper 1.41 area opening the possibility for further gains towards the 1.43–1.45 range [1]. Despite the ongoing rally, the strategists note that the CAD remains one of the more resilient major currencies against the USD's advance on the day [1].
However, the rally appears extremely overbought, with the daily Relative Strength Index (RSI) at 88.4—a level not seen in at least 20 years—suggesting that any forthcoming correction could be significant [1]. The strategists emphasize that while the trend favors further USD/CAD gains, the overbought conditions warrant caution for a potential meaningful pullback [1].
CONCLUSION
The Canadian Dollar's extended slump is primarily attributed to wider US-Canada yield spreads, pushing USD/CAD towards the 1.43–1.45 range. While the trend remains bullish, extremely overbought technicals signal the risk of a significant correction ahead.