US wholesale inflation, which is often a leading indicator of consumer inflation, hit its highest level in November in over a decade. That news comes shortly after we heard on Friday that consumer prices running at their fastest pace in nearly 40 years and will likely further reinforce the view that the US Federal Reserve will have to accelerate the end of its accommodative monetary policy. The debate about inflation being “transitory” is now over and it is clear that central banks will have to react to price pressures. An indication of that could come as early as tomorrow when the Fed makes its final statement of the year. The more aggressive the Fed is perceived to be, the less the Bank of Canada’s relative hawkishness will be an advantage for the Canadian dollar exchange rate. That sentiment about an increasingly hawkish Fed being forced to end QE and raise rates earlier than anticipated has powered the US dollar to very near its highest level for 2021 in the last couple of days. USD to CAD is now at 1.283 (CAD to USD is at 0.779). Fed policy is almost the sole driver of markets right now and has bulldozed over other factors that usually matter to the USD to CAD exchange rate. Never mind that oil prices seem to have stabilized or that some of the scariest scenarios around Omicron no longer seem likely. Domestically, the federal government will provide an economic update today which will be watched closely but is unlikely to contain any surprises that would move the exchange rate.
