Scotiabank cites widening US-Canada yield spreads and technical momentum as drivers for the Canadian dollar’s decline against the greenback.
The Canadian dollar (CAD) extended losses against the US dollar (USD), trading near mid-April lows as widening yield spreads between the two countries weighed on sentiment. USD/CAD rose above its 200-day moving average, with limited resistance ahead of 1.3900 and support near 1.3750.
Recent weakness stems from shifting central bank expectations, with the Bank of Canada’s dovish pivot contrasting the Federal Reserve’s hawkish stance. CAD correlations with yield spreads reached 0.89 over a 21-day rolling period, underscoring the sensitivity to policy divergence.
Technical indicators suggest momentum remains strong, with the relative strength index (RSI) climbing toward overbought territory. Analysts warn the move may be overextended, with risks tied to potential shifts in Fed expectations.