USD/CAD – Loonie Outperforms on Yield Spike, Debt Shortfall Will Weigh

The Canadian Loonie jumped against its US counterpart supported by stronger Gold and commodities prices and higher bond yields. USD/CAD tumbled to an overnight low at 1.34928 before rallying in late New York to 1.3510. Reuters reported that Canada’s long-term debt rose by the most in nearly four months as Ottawa forecast its largest budget shortfall since the Second World War. The yield on Canada’s 10-year bond climbed 6 basis points to 0.57% from 0.51% yesterday. In contrast the key US 10-year treasury rate was up 2 basis points to 0.66%.

FXCM USDCAD H1 Chart - 09 July 2020
FXCM USDCAD H1 Chart – 09 July 2020

In the longer run a budget deficit will result in a weaker currency, not stronger. Much of the Loonie’s gains were also fuelled by the market’s risk-on stance as equities rallied. The latest Commitment of Traders report (week ended June 30) saw net speculative CAD shorts trimmed modestly to -CAD 20,519 contracts from the previous week’s -CAD 20,834.

USD/CAD has immediate support at 1.3490 followed by 1.3450. Immediate resistance can be found at 1.3530 followed by 1.3580 and 1.3620. Look for consolidation in a likely range between 1.3490-1.3590. Prefer to buy USD/CAD dips.

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