The Canadian Dollar (CAD) has continued its decline against the US Dollar (USD), with the USD/CAD pair extending losses to levels last seen in mid-April, according to Scotiabank analysts. The CAD is entering Wednesday’s North American session with a fractional 0.1% decline versus the USD, marking a continuation of its bearish trend [1].
Scotiabank highlights that the primary driver of recent CAD weakness is the outlook for relative central bank policy. US-Canada yield spreads have widened due to softening tightening expectations for the Bank of Canada, while the Federal Reserve's outlook has shifted from rate cuts to potential hikes. This has led to elevated CAD/spread correlations, currently running at 0.89 on a rolling 21-day basis [1].
From a technical perspective, USD/CAD is trading above its 200-day moving average (1.3812), with momentum indicators such as the RSI climbing into the upper 60s and approaching the overbought threshold at 70. The daily chart shows limited resistance before the psychologically important 1.3900 level, while support is seen near the 50-day moving average around 1.3750. Scotiabank expects a near-term range between 1.3780 and 1.3880 [1].
The analysts note that the move appears somewhat extended and caution that a renewed softening in Fed expectations could pose risks to the current trend [1].
CONCLUSION
The Canadian Dollar remains under pressure against the US Dollar, driven by widening yield spreads and shifting central bank expectations. Technical indicators suggest further upside for USD/CAD, with limited resistance ahead of 1.3900. However, Scotiabank warns that changes in Fed expectations could alter the current trajectory.