USD/CAD Breaks Above 1.4100 as US Yields Surge

Traders' Opinions

Summary:

USD/CAD has broken above 1.4100 as surging Treasury yields and expectations of further Fed tightening strengthen the Dollar. Higher Oil prices are providing only limited support to the CAD.

BUY USDCAD

Close Time

CLOSED

1.41200

Entry Price

1.42400

1.40000

1.41405 +0.00038 +0.03%

25.6

Pips

Profit

1.40000

1.41456

Exit Price

1.41200

Entry Price

1.42400

The Canadian Dollar extended its decline against the US Dollar on Thursday, leaving USD/CAD on course for a fourth consecutive daily advance as rapidly rising US Treasury yields reinforced demand for the Greenback. The pair pushed above 1.4100 for the first time in two months, bringing the late-July highs around 1.4130 back into focus.

The latest move has been driven primarily by the sharp repricing of US interest-rate expectations. Treasury yields have climbed to levels not seen in more than two decades as investors increasingly consider the possibility that the Federal Reserve will need to tighten monetary policy further to contain persistent inflation.

Wednesday's US business activity figures added fuel to those expectations. Economic activity expanded at its strongest pace in more than five years, while stronger employment, wage growth and rising input costs suggested that inflationary pressure remains embedded in the economy. The data strengthened the argument that current monetary conditions may still not be restrictive enough.

Societe Generale highlighted the scale of the bond-market move, noting that the 10-year Treasury yield has broken above its 2023 peak of 5.02%, while the two-year yield climbed toward 4.94% and the 10-year reached around 5.09% following the PMI release. Although the increase in yields is becoming stretched, there has yet to be a convincing signal of a sustained reversal.

That backdrop has kept the Dollar firmly supported even as Oil prices rebound. Brent has recovered toward the psychologically important $100-per-barrel level after US-Iran discussions at the UN General Assembly failed to deliver meaningful progress. The lack of an agreement has reduced expectations that the Strait of Hormuz could reopen in the immediate future.

Ordinarily, stronger Oil prices would provide support for the commodity-sensitive Canadian Dollar. This time, however, the impact has been overshadowed by the strength of the US rate story and broader defensive demand for the Greenback.

Attention now turns to Canadian Retail Sales, which are expected to decline 0.8% in July following June's 0.6% increase. A weaker reading could add another layer of pressure on the CAD. In the US, weekly Initial Jobless Claims and further Fed commentary will be closely monitored for confirmation that labour-market conditions remain strong enough to support additional tightening.

For USD/CAD, the combination of elevated Treasury yields, hawkish Fed expectations and softer sentiment continues to favor the US Dollar, while recovering Oil prices remain one of the few factors limiting the Canadian currency's decline.

Technical Analysis

USD/CAD remains firmly tilted to the upside on the 4-hour chart, with the pair extending an aggressive recovery from the 1.3760–1.3780 demand zone. The advance has developed through a consistent sequence of higher highs and higher lows, while several former resistance areas have already been reclaimed and converted into support.

Price is now trading around 1.4117, directly testing the important 1.4090–1.4115 resistance zone. This area capped several advances in July, making the current test particularly significant. Buyers have already pushed through the lower boundary, but a sustained H4 close above 1.4120 would provide stronger confirmation that the breakout is genuine.

The speed of the recent advance leaves room for a short-term correction. A pullback into 1.4090–1.4100 would effectively retest the breakout area and could provide a stronger foundation for the next leg higher. As long as price holds above this region, the bullish structure remains intact.

Once 1.4120 is cleared decisively, there is relatively limited visible resistance until the major 1.4230–1.4245 supply zone. This becomes the primary upside objective and matches the bullish continuation path shown on the chart.

On the downside, a failed breakout would initially expose 1.4000–1.4015, which previously acted as resistance before being reclaimed during the latest rally. Below that, 1.3885–1.3900 represents the next significant support. A move beneath these levels would signal a more meaningful deterioration in the current bullish structure.

Overall, the chart favors a breakout-retest-continuation setup. A brief correction around 1.4100 would not invalidate the advance; instead, holding that area could set the stage for another push through 1.4120 and toward the 1.4230–1.4240 region.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.4120

STOP LOSS: 1.4000

TAKE PROFIT: 1.4240

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USD/CAD Breaks Above 1.4100 as US Yields Surge

Technical Analysis

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