Canadian Dollar Extends Decline as Rate Differential Widens
The Canadian dollar has continued its decline, extending 12 of the past 13 sessions against it. This downturn follows Canada's implementation of counter-tariffs on $27.6 billion worth of US goods on September 8.
USD/CAD is trading near its highest level since mid-July at around 1.4150 and has been rising for a fifth consecutive day as well as a third straight week. The Canadian dollar's decline has retraced more than four-fifths of the earlier drop from the late June high to the August low.
Oil-price support, which is typically tied to the Canadian dollar, was absent this time around. Brent crude rose over 15% in September but had little impact on USD/CAD, while WTI slipped towards $92.00 after Iran's Hormuz proposal and USD/CAD continued its upward trend.
The rate differential between the US and Canada remains a key factor. The Federal Reserve raised its policy rate to 3.75-4.00% on September 16, while the Bank of Canada has held at 2.25% for seven meetings, most recently on September 2. This leaves a gap of roughly 1.25 points between the two countries' 10-year yields.
Trading strategy recommendations suggest leaning long on USD/CAD in the coming weeks and targeting resistance levels around 1.4200 and 1.4250. The widening interest rate gap is expected to continue pulling capital into the US dollar as long as support level of 1.4000 holds on a daily closing basis.