We don’t expect much further upside for USD/CAD. Yet, a return to the 1.35 magnet we have been trading around is unlikely to materialize this year. 

That said, we would suggest the primary driver of USD strength has been the sharp bear steepening of the US Treasuries curve. We cannot rule out further upside for the 10-year yield – which up to this point we would suggest has primarily been a function of rising term premium. However, we are calling for a sharp move lower to 4.45% by year-end. Should this come to fruition then a move back below 1.36 could well be on the cards for USD/CAD, and we now forecast a year-end target just north of there at 1.3620.