The Canadian dollar has had a busy week. Earlier in the week, the Bank of Canada passed up the opportunity to jawbone the Loonie lower even though the Canadian currency was trading near 2.5 year highs. Instead, the Loonie kept grinding higher against a US dollar which has been weakening for weeks as optimism prevails and various risks fade to the background. The Loonie has also benefited from strong oil prices which are trading at pandemic-era highs this week, both due to due to stronger demand expectations and a tighter supply situation. Last night, the US dollar even flirted with the 1.27 level in the overnight session for the first time in a very long time. But this morning the Loonie has given up those overnight gains and we are once again closer to the 1.28 level. The broader picture is somewhat more clear now. In a span of two weeks, we have gone from a period where the US dollar was steadily worth in the 1.30 – 1.31 CAD to a new situation where it hovers around 1.28 CAD. The primary reasons? Optimism about vaccines and the end of the pandemic, higher oil prices, and the increasing likelihood of a fiscal stimulus package in the US.
