USD/CAD Pushes Above 1.40 as Rate Gap Trumps Oil Prices
Despite oil prices hovering near $100 per barrel, the Canadian dollar (CAD) has lost ground against the US dollar (USD), pushing USD/CAD above 1.40 for the second consecutive session.
The recent move can be attributed to the widening interest-rate gap between the US and Canada, with the Federal Reserve raising its benchmark rate by 25 basis points to a target range of 3.75% to 4.00%, while the Bank of Canada has kept its policy rate at 2.25%.
The two-year yield spread is currently near 142 basis points in favor of the US, making short-dated US assets relatively more attractive and creating an additional headwind for the Canadian dollar.
Bank of Canada Governor Tiff Macklem's speech today may provide some clarity on the central bank's path forward, but the market will be closely watching how he addresses inflation breadth, energy pass-through, and growth in his address.