USD/CAD Pairs Sees Six Consecutive Days of Gains Amid Rising Interest-Rate Differentials

The USD/CAD pair has seen six consecutive days of gains, pushing towards the 1.4150 level, driven by widening interest-rate differentials and oil prices.

The Canadian dollar has been under pressure due to a higher probability of a Fed rate hike in October, with market expectations now standing at around 65.9%, up from 57.6% last week and significantly above the 9.4% recorded one month ago.

However, strategists at the Bank of Nova Scotia believe that the Canadian dollar's weakness has already extended to some extent, with the market's pricing for further monetary tightening by the Federal Reserve now constrained.

The current Middle East tensions have kept oil prices elevated, but this has yet to provide significant support for the Canadian dollar. The bank notes that a rapid rise in U.S. Treasury yields and growing expectations of Fed rate hikes have largely offset the positive impact of higher oil prices on the loonie.