Canadian Dollar Surges to Two-Month High Amid Narrowing Bond Yield Spreads

The Canadian dollar has strengthened to a two-month high against its U.S. counterpart on August 14, as domestic factory data supported recent narrowing in the gap between U.S. and Canadian bond yields.

According to Shaun Osborne and Eric Theoret, strategists at Scotiabank, the retrenchment in Fed tightening expectations has driven a significant narrowing in front-end spreads since the end of July.

The gap between Canada's 2-year yield and the U.S. equivalent has narrowed by about 17 basis points this month to 120 basis points in favor of the U.S. note.