USD/CAD Surges to Mid-July High on Yield Spread and Diverging Central Bank Policies

The USD/CAD pair has pushed to its strongest level since mid-July, trading near 1.4113 and up almost 2% on the month.

This move is largely attributed to a widening two-year yield spread between US and Canadian bonds, with the US Treasury yield around 4.89% against Canada's two-year near 3.40%, a gap of almost 150 basis points.

The diverging paths of the Federal Reserve and the Bank of Canada have also contributed to the CAD's weakness, particularly with Canadian retail sales failing to shore up the currency, headline sales fell 0.7% month-on-month in July versus a 0.8% drop expected.