USD to CAD is up again this morning and now at 1.294, its highest level in 13 months (CAD to USD is at 0.773, its lowest level in 13 months). Just a few weeks ago, the financial markets were benefitting from nearly perfect conditions with extraordinary monetary stimulus (accommodative central banks), massive fiscal spending (governments at all levels spending in record amounts) and the pandemic’s end looking like it could be in sight. All three of those factors underlying the market’s confidence have since been seriously eroded. Central banks are now speeding towards raising rates after conceding that inflationary pressures are not transient and despite the uncertainties introduced by Omicron. The emergence of Omicron has also dented hopes of the pandemic coming to a quick end. And now, we are getting the first indications that there are political limits to government fiscal spending as well. In the US, President Biden’s nearly $2 trillion dollar domestic investment plan has been dealt a likely fatal blow by a pivotal Democratic senator who announced that he will not support it. With investors looking to reduce risks, all risky assets have generally been on the decline. And that is the theme that is animating the markets this morning and it is why USD to CAD is up another 0.4% from Friday and why stocks are continuing their decline from Friday. The rapid rise of Omicron and its impact on economic activity is also denting demand expectations for oil, which is down over 4% this morning, and further pressuring the Canadian dollar.
