USDCAD: Signs that the Canadian Dollar is starting to look overcooked is rising. Since Friday, oil prices have risen over 6%, while in the same period CAD has failed to extend higher. Since the BoC’s hawkish taper, CAD strength has been a dominant trade, however, with the pair dropping nearly 5%, it would be natural to see a unwind of positioning. As I highlighted in the weekly COT report, CAD is the largest bull bet in the G10, which heightens the risk of a correction should risk sentiment rollover. Alongside this, USD/CAD is trading rather cheap relative to US/CA rate differentials, which has also moved more in favor of the greenback.

Momentum studies (RSI) has edged higher, moving out of oversold conditions on the daily chart, posting a slight bullish divergence, typically a signal for a change in direction. That said, there has been little interest to take USD/CAD higher with 1.2140-45 capping any rallies. On the downside, support sits at 1.2020-25 and 1.2000.

USD/CAD Chart: Daily Time Frame

Source: Refinitiv

US/CA Rate Differentials vs USD/CAD

Source: Refinitiv