In the final few trading days of the year, the Canadian dollar is making a push towards the two a half year highs at which it traded mid December. It is currently less than 1 penny away from that level and is unlikely to get there before the end of the year. The US dollar story remains the same as it has been for the last few months; gradual decline against most major currencies. Aside from that particular trend, the markets feel directionless. Certainly, light trading volumes at year-end have something to do with it. But there is also a sense that the markets have priced in most expected developments at this point (“end” of the pandemic/shutdowns by mid-year in most major economies, political stability in the US, friendly central banks holding status quo for a while, etc.) and are now waiting for the next shoe to drop. Vaccination rates will be in focus but they are unlikely to diverge much from expectations. More likely, as we have been discussing, the next catalysts for USD/CAD will be more local in nature and might have to do with domestic developments in Canada. Is there an election on the horizon? Will the Bank of Canada move to rein in its various programs sooner than expected? Those are not predictions but a restatement of our view that over time traditional factors like the price of oil and domestic central bank activity will come to impact the Canadian dollar more than they have since the pandemic began.
