The Canadian dollar is flat this morning but it gained 0.5% during the day yesterday and is now trading at its highest level since January of 2018. The move in USD to CAD yesterday came in response to the firming up of oil prices. But most of the recent strength in the Loonie has been due to the surprisingly hawkish stance that the Bank of Canada took this past Wednesday when it indicated that could cut rates next year and showed a willingness to be aggressive in cutting back bond purchases. That message stands in stark contrast to the insistently dovish posture of the US Federal Reserve and most other major central banks. In fact, the market now assigns a 40% probability of a rate hike by the Bank of Canada in March of 2021 but only a 7% probability that the Fed will hike in the same time frame. We will hear from the Fed this Wednesday and it could change its view but most observers expect it to reiterate its current accommodative policy for the foreseeable future. So, as it stands now, the Bank of Canada is well ahead of major central banks in showing its willingness to revert to a more normal monetary policy and that is pushing up the Canadian dollar to new multi-year highs.
