Yesterday, we noted that the markets are looking past the Omicron wave despite the renewed closures and restrictions around the world, and that bond markets in particular were preparing for rate hikes. Today, Bloomberg News notes that Canadian bond markets are catching up to the rest of the world and pricing in multiple rate hikes in 2022 even as large parts of the country move back to various stages of lockdown. Canadian investors now expect the first rate hike to happen as early as late January at the Bank of Canada’s first announcement of 2022. The bond markets are of course reflecting vague signals from central banks that they will not change path as a result of Omicron. An important indication of what central bankers actually think of Omicron will come today at 2 PM ET when the minutes of the Fed’s December meeting are released. For the first part of this year, the story of the Canadian dollar to USD exchange rate will be all about which of the two central banks is moving more quickly to tighten monetary policy. Oil, the other important driver of the Canadian dollar exchange rate in the near future, has been on the upswing since mid December and that continued today with WTI up over 1%. One factor to watch on oil prices in the next few months is the outcome of talks between world powers and Iran. If those negotiations are successful it, would lead to a significant supply increase that could hit oil prices. At the moment, the Canadian dollar is basically unchanged from yesterday afternoon with USD to CAD at 1.271 (CAD to USD is at 0.787).
