July economic activity in China came in below expectations as the latest Covid outbreaks seemed to weigh on the world’s second largest economy. That has led to renewed demand concerns for oil and has pushed the price of Canada’s largest export to near the lows of the last few months. In turn, the Canadian dollar is down 0.4% and testing its lows so far this August. USD to CAD is at 1.256 (CAD to USD at 0.796). Over the weekend, the news was dominated by the triggering of an election in Canada and the takeover of Afghanistan by the Taliban. Neither development was entirely surprising or material to currency markets. The Canadian election will matter only if the polls change so dramatically that the market perceives a possible new approach to budgetary issues. Developments in Afghanistan will only begin to matter if instability spreads to larger neighboring countries. Over the last few days we have been experiencing low volatility in exchange rates, which is not unusual in the summer months. But this week could see a break from that lull as the markets absorb two important data points in Wednesday when we get inflation figures in Canada and the minutes of the Federal reserve meeting.
