USD/CAD Breakout Gathers Pace on US Rate Sensitivity
The USD/CAD has seen a significant breakout in recent days, breaking above its key medium- and long-term moving averages. This move has been largely driven by the sensitivity of the pair to shifts in US front-end rates, with the correlation between daily changes in USD/CAD and US two-year yields rising to around +0.74 over the past five sessions.
The recent rebound in USD/CAD has also coincided with an improvement in US economic data compared to expectations versus that seen in Canada. Data surprises in the United States have become more positive, while Canadian outperformance has started to reverse.
As the pair approaches the key level of 1.3991, traders will be watching for a decisive move above or below this level. A break above could see prices reach levels such as 1.4080 and 1.4118, while a reversal towards the 38.2% Fib at 1.3930 would provide an early warning to bulls that the current trend may be at risk of reversing.