“Omicron” has quickly become a late entry for word of the year. On social media, young people are already using it to refer to a negative surprise; “he is such an Omicron, he ruined the whole party.” As for the financial markets, they are attempting a partial rebound from Friday’s sell-off. Part of the reason for the modest rebound is that initial indications are that while the variant is much more transmittable, its symptoms may in fact be relatively mild. That observation was made the South African doctor who first noticed its spread. On Friday, the value of USD to CAD surged to as high as just below the 1.280 level as the Canadian dollar sold off along with other risky assets such as oil, stocks, and cryptocurrencies. This morning, the loonie has recovered somewhat and USD to CAD has stabilized at 1.275 (CAD to USD is at 0.784). However, in our view, the volatility is not yet over. For one thing, we have much to learn about the variant itself and much of it will come out in the next few days. For example, on the domestic front, we know that the first two cases have been detected in recent travelers to Canada but we do not know how widely it may already be spreading in the general public. We may also get the first hints as to a monetary policy response to Omicron this afternoon as the Governor of the Bank of Canada and the the Chairman of the Federal Reserve are both set to speak at previously scheduled events. Tomorrow, we get 3rd quarter GDP growth rates, and despite the focus on Omicron, a GDP surprise could still move the USD to CAD rate.
