The US dollar is stronger by 0.25% against the Canadian dollar this morning. The markets continue to seesaw between optimism on economic recovery and worries about the persistent effect of the virus, particularly in the US. The effect of the uncertainty, combined with massive fiscal and monetary stimulus is the seemingly contradictory signalling coming from asset prices which are up and the evidence about ongoing economic pain on Main Street. Take Canada in the last 24 hours. On the one hand, Toronto and Vancouver real estate prices and activity have largely shrugged off the pandemic and are approaching record levels. On the other hand, the Bank of Canada says business sentiment is at its lowest since 2009. Economic actors flush with cash from governments and central banks but uncertain about the future is that economic activity continues to be muted but asset prices are being bid up. The USD/CAD exchange rate is actually good proxy for that tension on a day to day basis. The loonie is a “risk currency” while the US dollar is a “safe-haven”. Whenever the risks about the economy prevail, the USD trades up and whenever the massive liquidity prevails, the Canadian dollar trades up.
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