Canadian Dollar struggles as US-Canada yield gap widens
USD/CAD extends its rally on Monday as diverging monetary policy outlooks between the Federal Reserve (Fed) and the Bank of Canada (BoC) keep the US Dollar (USD) favoured, outweighing support for the commodity-linked Canadian Dollar (CAD) from higher Oil prices.
The Canadian dollar is struggling as the yield gap between the United States and Canada widens. At the start of the week, the USD/CAD pair is trading around 1.4165, its highest level since July 13, due to the diverging monetary policy outlooks of the Federal Reserve and the Bank of Canada. US Treasury yields are near 4.90% for the 2-year and around 5.21% for the 10-year, while Canadian government bonds are at 3.96%.
The Federal Reserve raised interest rates by 25 basis points at its September meeting, with further hikes expected to combat inflation. In contrast, the Bank of Canada kept its rate at 2.25%. Traders are now monitoring Canada's July GDP data and other economic releases, including the PCE inflation report, the ISM PMI, and the Nonfarm Payrolls report.
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