Credit Agricole CIB Research raises its USD/CAD targets and now expects the pair to trade around 1.140 in Q3 and 1.38 by year-end.

"USD/CAD’s rally from just short of 1.35 to just shy of 1.43 in less than two months has followed a steep widening in rate differentials, with for instance the 2Y spread rising nearly 50bp to around 130-140bp. Looking at the shorter end, it means the first BoC hike is not fully priced in until March, whereas US money markets see 1.5 rate hikes from the Fed by the turn of the year," CACIB notes.

"We have raised our USD/CAD forecast profile to account for the recent USD resurgence and Canada/BoC’s struggles to follow in the footsteps of the hawkish US/Fed repricing. Yet, such a regional decoupling now appears overdone to us, as we still expect USD/CAD to re-establish itself within 1.35/1.40 in the coming months," CACIB adds.