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Can-US Yield Differentials Have Growing Sway On USDCAD Pre CPI

  • USDCAD is trading near US session lows, currently 1.347, as it closes out the week with a 0.9% increase vs the broader dollar index only 0.3%.
  • Negative correlation with S&P e-mini has faded although it remains an important driver (-0.66 20-day rolling) but more noticeable has been the larger negative correlation with the Can-US 2Y yield differential, which at -0.77 is just off 2022 lows.
  • The 2Y diff has narrowed intraday but remains 3bps wider on the week at -48bps, with CAD CPI inflation on Tue a potential key driver along with US flash PMIs before the FOMC minutes Wed.
  • An intraday high of 1.3537 sets initial resistance for the pair after which lies 1.3665 (Jan 6 high), with support at 1.3275 (Feb 14 low).

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