Loonie Bulls Face Risk in Widening U.S.-Canada Two-Year Spread
- Correlation of spread and USD/CAD is close to perfect
- TD sees more spread widening in weeks ahead, barring shock
Canadian one-hundred dollar bills
Photographer: Pawel Dwulit/BloombergThis article is for subscribers only.
Canadian dollar bulls, sporting a gain of nearly 8 percent against the U.S. dollar over the past three months, can’t ignore the widening yield gap between U.S. and Canadian two-year debt.
The exchange rate is almost perfectly correlated with the yield differential over the past three months, and Toronto-Dominion Bank analysts say additional widening is possible as soon as Friday based on U.S. inflation data. If the loonie continues to follow its lead, the currency could extend its recent weakening against the dollar in the weeks ahead.