The Canadian dollar is trading at its highest level since September 2018 after gaining 04% this morning. The exchange rate is now trading through the 1.300 barrier for the second day in a row. Interestingly, today’s move comes despite a modest pull back in stocks and lower oil prices to start the week. Part of the move in the exchange rate can be explained by continued US dollar weakness as investors move into non-USD assets in anticipation in a sustained pickup in global growth and with greater appetite for risk. But the Loonie is actually outperforming the other (non USD) currencies this morning as well. We have been expecting the gradual decoupling of USD/CAD exchange rate from the daily moves in stock markets and we may be beginning to see that today as the markets focus on the first fiscal update in a while from the federal government. The bogey for the size of the deficit seems to be $400 billion. If the number is much bigger than that and there is no credible plan for eventual winding down of the fiscal programs that have supported the economy during the crisis, we may see a negative impact on the Canadian dollar.
