What a ride it has been for the Canadian currency in the last five trading days! Starting on Wednesday afternoon, the loonie was the weakest major currency and lost 2.5% to trade at a 7-month low by Friday afternoon. But the currency has now regained all of that lost ground against the US dollar and it is now right back where it started. USD to CAD is at 1.263 (CAD to USD at 0.791). The sharp move down in CAD started last week after the minutes of the July Fed meeting seemed to confirm the market’s suspicion that the US central bank would begin pulling back monetary stimulus in October or November. The pressure on the Canadian dollar increased as oil prices plunged in response to worries about global economic growth, fed by concerns about the spread of the virus in certain regions as well as weak economic data out of China. But by Monday sentiment had turned much more positive and risk currencies like the Canadian dollar were again in favour. There are hints that Fed Chairman Powell may use a speech this Friday to indicate that the US central bank would wait until December before tapering stimulus, partially in response to delta variant fears. By this morning, the appetite for risk seems to have come back fully with stocks approaching record levels again and oil prices up for the second day in a row and partially recovered from last week’s plunge. It should be noted that the unusual volatility is probably somewhat magnified by light summer volumes.
