USD/CAD Breakout Falters at Key Retracement Level
The USD/CAD pair has been on a tear, breaking out of its downtrend established in early July and surging nearly two weeks straight. This bullish move has seen the price rise above key medium- and long-term moving averages before stalling at the 50% retracement level, a point that has been respected by the price on several occasions over recent months.
The pair's sensitivity to US front-end rates has surged in the past week, with its correlation to daily changes in USD/CAD rising to around +0.74. This relationship is stronger than its connection to longer-dated US yields, suggesting that developments on the US side of the ledger have driven this recent leg higher.
The pair's rebound also coincided with an improvement in US economic data relative to expectations versus Canada, where outperformance has stalled and started reversing. With little top-tier US or Canadian data until next week, focus will be on Fed speak, which could amplify dollar volatility.