USD/CAD hits 14-month high near 1.4200 as Fed-BoC gap widens

The Canadian dollar extended its slide to the weakest in 14 months as a widening interest-rate differential with the US and falling gold prices overwhelmed support from elevated crude oil.

USD/CAD rose for an eighth consecutive session, reaching 1.4193 — the highest since April 2025 — during early European trading on Monday. The pair traded near 1.4180, extending a rally that has pushed the loonie lower in six of the past seven weeks.

"The traditional correlation between the Canadian dollar and crude oil has flipped, with gold becoming the more influential commodity channel," analysts at VT Markets wrote in a note. "The widening policy gap between the Bank of Canada and the Federal Reserve is now the primary driver for our bearish stance on the loonie."

The spread between US and Canadian two-year government bond yields has widened to more than 150 basis points, the largest gap in over a year, making dollar-denominated assets more attractive. The Federal Reserve held its benchmark rate at 3.75% at its June meeting and pushed its dot plot projections higher, with markets pricing a potential hike in 2026. The Bank of Canada has kept its policy rate at 2.25% and remains on hold.

Gold's six-week decline has added to the pressure on Canada's currency, given the country's role as a bullion producer. COMEX gold futures settled around $2,285 an ounce after falling steadily from recent record levels. Meanwhile, WTI crude held above $85 a barrel, but the traditional oil-loonie link has weakened, with the rolling correlation between daily moves turning negative in recent months.

The 14-day Relative Strength Index on USD/CAD hovered near 87, deep in overbought territory, suggesting the pace of gains may be stretched. Still, the pair remained well above its nine-day exponential moving average of 1.4070, which now serves as the primary support level. A break below that would open the door to a test of the ascending channel's lower boundary near 1.3960, with the 50-day EMA at 1.3863 as the next downside target. On the upside, a sustained move above 1.4200 would target 1.4250 and then 1.4300.

Speculators have piled into bearish Canadian dollar bets, with CFTC data showing net short positions swelling to more than 60,000 contracts. That heavy positioning raises the risk of a sharp short-term pullback toward 1.4100, which some traders may view as an opportunity to establish new short positions.

Traders are now focused on Canada's May consumer price index report due Monday at 12:30 GMT, with inflation running near 3%, followed by Bank of Canada Governor Tiff Macklem's remarks on Tuesday. The US will release its May personal consumption expenditures price index on Thursday, with core PCE expected at 0.3% month over month — a reading that could reinforce the Fed's hawkish stance and provide the catalyst for a break above 1.4200.

This article is for informational purposes only and does not constitute investment advice.