Welcome to the June edition of the George Davis Report. What I'd like to talk about this month is the appreciation that we've seen in dollar Canada, especially over the last three or four weeks, because essentially since the beginning of May, we've gone from a level of 1.3550 as the low all the way up towards the 1.3970 level as of the day of taping on June the 8th. And so what I thought I'd do is walk you through some of the drivers of this price move and put things into context from a hedging perspective. And so I think the first question to deal with is really why has dollar Canada been so strong? And I think that one reason is that there really hasn't been a lot of strong reasons to sell the US dollar in the current market environment. And as you can see in the chart on the screen right now, one of the things that really stands out is the US dollar is actually featured as a higher yielding currency in the G10 space right now.
And if you look at the nine other currencies that are part of that G10 space, basically yield differentials favor the US dollar against six of those nine currencies. From a yield spread differential, that certainly makes holding US dollars more attractive to global investors. And so that's one of the reasons why we've seen this appreciation in dollar Canada in the sense that it's moved up with broader based US dollar strength as well. Now another reason why we've tended to see the US dollar remain quite firm is investment flows have continued to favor US assets. So in other words, we haven't really seen a significant amount of outflows from foreign investors in terms of the US assets that they're holding. One of the major themes that the market's been focused on this year, of course, is AI - and the US market is the global leader in terms of that broader theme.
And so certainly that's attracted some new capital into AI related investments in the equity markets, the broader equity market flows as well, and also into US treasuries. And so again, those flows have helped to underpin the US dollar. And if you go back to last January, essentially we've only seen roughly two months of negative outflows from US assets. One was in January of 2025 and the other one was in April of 2025 as we got the Liberation Day tariffs and there was all kinds of uncertainty floating around in terms of what the outcome was going to be around the tariffs. But aside from that, generally speaking, on a month-to-month basis, we've seen more inflows into US assets. And so that has helped to underpin the US dollar more broadly. And then thirdly, what we've seen more recently is the US dollar has been trading like a so-called safe haven asset.
So in other words, when we saw the war in Iran flare up, that helped the US dollar rally. When we've seen the equity markets sell off recently, that has been an environment where that risk off type of behavior has caused the US dollar to rally. And so essentially what's happening here is it hasn't really nudged US investors and forced them to become more aggressive in terms of hedging their US dollar exposure based on the US dollar assets that they've been holding. And so that absence of aggressive US dollar sales from a hedging perspective has helped to drive the US dollar broadly higher. And so again, if we go back to our correlation framework, which you see on the screen now, you'll notice that the US dollar - broader US dollar direction -continues to serve as the most important driver of dollar Canada. And so given the fact that we haven't had a lot of reasons to sell the US dollar more recently, which has translated into broader US dollar strength, that's been the main driver that's pushed dollar Canada above the 1.3900 threshold closer towards 1.4000 where we stand today.
And you'll notice also on that chart, when you look at the oil correlation, it's basically right around zero. And in other words, oil prices are not having a significant directional impact on dollar Canada right now. It's generally focused around the broader moves in the US dollar. And I think what we're going to have to see for a reversal of these so-called trends is number one, if we were to get some sort of ceasefire announcement signed with respect to the Iran war, obviously that risk has been underpinning the US dollar more broadly lately. If we were to start to see some signs of a ceasefire being signed, that perhaps could be a catalyst to cause the US dollar to weaken off a little bit more as we get more clarity and that helps the risk backdrop. And also if we were to see those rate differentials between the US and some of those G10 currencies start to narrow a little bit, that would certainly be a catalyst to cause the US dollar to weaken off a little bit.
Now I think one question that merits some attention given where we are right now is we are at the highest level in dollar Canada since December of last year. And so that introduces, I think, some selling opportunities for people who are looking to hedge their US dollar exposure. And if we look at a chart of dollar Canada right now, there's basically three important resistance levels that stand out: 1.3985, and then close to the 1.4050 level, and then 1.4150. So I think if you're a US dollar seller, we are in an attractive window that might make some sense to put some hedges on at these advantageous levels, especially just given the fact that six weeks ago we were down at 1.3550. So I would think that approaches toward that 1.3985 level and then the 1.4100 level on the topside I think would merit some attention in terms of building those levels into a hedging strategy right now.
And on the flip side, if you're US dollar buyer, I think what the chart is telling us right now is we're going to have to see a close back below the 1.3800 level to suggest that the bullish upward momentum in dollar Canada has come to an end and we're starting to see an environment where dollar Canada could perhaps retrace back down toward the 1.3600 to 1.3700 level. So for those of you that are US dollar buyers, I think you want to keep an eye on that 1.3800 area to give you an idea as to whether or not dollar Canada is going to start to weaken off towards more advantageous levels in your case. Now in terms of our expected trading range, I think we'll bump it up a little bit in the month ahead, just given this move toward the 1.4100 level. On the downside, I think we'll pitch the 1.3600 to 1.3700 level and on the topside, the 1.4000 to 1.4100 level going forward to give you some idea of the boundaries that we're expecting in the month ahead.
From a bigger picture perspective, we are still biased towards broader US dollar weakness in the second half of the year and that's what makes this opportunity to sell some US dollars look even more attractive at current levels. And so again, I think that's something worthwhile considering right now. Now stay tuned for our next update in the month of July where we'll reassess the economic backdrop and see if that necessitates any changes to our outlook and our forecasts.