The Federal Reserve did not step back one inch from its aggressively dovish stance yesterday, placing it at the opposite end of the spectrum from the Bank of Canada which took a decidedly hawkish tone last week. The USD to CAD exchange rate reacted accordingly, with the Canadian dollar now trading at its highest level since September of 2017. The markets expectations for interest rates in the two countries now diverge substantially with a rate hike in Canada by mid 2022 seen as almost certain whereas a rate hike in the US in the same time frame is seen as very unlikely. That alone would be enough to push the Canadian dollar up. But there are even more tailwinds for the Canadian dollar. First, the risk sentiment overall remains positive with companies reporting record results, economic indicators generally strong, and stocks at all-time highs. All of that combined with with strong commodity prices (especially lumber) and oil also approaching recent highs and you have a situation where the Canadian dollar is outperforming almost every other major currency.
