There are many themes animating the currency exchange markets these days (energy prices, China Evergrande, the Delta variant, the US debt ceiling, supply constraints, etc.). But today is all about US treasury yields and you can see it clearly in the Canadian dollar exchange rate. Oil prices are up for a sixth straight day in a row and both benchmarks (WTI and Brent) are trading at multi-year highs). The price of the key global commodity is now up around 50% since the beginning of 2021. You might expect that the Canadian dollar would be rallying in light of the run up in oil prices but it is not. In fact, the loonie is down 0.2% against the US dollar this morning. The reason for that is a broad strenght in the US dollar in response to a surge in US treasuries. That surge started at the end of last week as the markets began adjusting to beginning of the end of pandemic-related monetary stimulus. The 10-year US Treasury now yields 1.55%, the highest levels since June. Just earlier last week, the yield was around 1.29%. So the move up has been considerable and it has made the US dollar relatively more attractive for investors. The global flows into the US dollar have overwhelmed any benefit from rising oil prices to the Canadian dollar. USD to CAD is currently at 1.267 (CAD to USD is at 0.789). In the equity markets, the repercussions of the move up in treasury yields can be seen most clearly in the rate-sensitive technology sector with the NASDAQ down 1.5% this morning. Rates are likely to continue to dominate the markets for the next few days.
