Canadian Dollar: Yield spreads drive extended CAD slump – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note USD/CAD continues its grind higher, with the Canadian Dollar (CAD) in a near straight-line decline since early May as wider US–Canada yield spreads drive weakness. Short-term technicals are described as neutral/bullish, with a break above the upper 1.41 area opening 1.43–1.45, though an extremely overbought RSI suggests any correction could be meaningful.

Overbought rally eyes 1.43–1.45

"The big dollar grind higher has extended a little more this morning but the CAD is one of the more resilient major currencies to the USD’s advance on the day."

"It has been a straight line decline for the CAD since it peaked at 1.3550 on May 1 and it has lost ground daily 80% of the time since then."

"Wider US/Canada yield spreads remain the primary driver of the CAD’s latest slump. That looks quite rich."

"Neutral/bullish—Bullish because the trend is your friend and the push through the upper 1.41 area paves the way for further gains towards 1.43/1.45."

"Neutral because the USD has not looked this overbought in I don’t know how long. The daily RSI is not quite off the charts but, at 88.4, it has not been higher in at least 20 years. The correction, when it comes, should be meaningful. "

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)