USD/CAD Surges as Front-End Rates Take Over

The USD/CAD exchange rate has been on a bullish trend for nearly two weeks, breaking out of its downtrend established in early July and moving above its key medium- and long-term moving averages. This move is being driven by the pair's increasing sensitivity to shifts in US front-end rates, with a strong correlation between daily changes in USD/CAD and US two-year yields.

According to recent data, the relationship between fluctuations in crude prices and movements in longer-dated US Treasury yields and the DXY has been relatively weak for this particular pair. Instead, it is the front-end rate show that's helped underpin this move, with a correlation of +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 Canada, which has seen its outperformance start to reverse.