The near term picture for USD to CAD is going to be dominated by two opposing trends. Helping to push the Canadian dollar up is extraordinary support from central banks for as long as the eye can see, record stock prices, and strong commodity prices. On the other hand, the primary short-term risk to the Loonie are rising inflation expectations leading to rising bond yields in the US and Canada. Yesterday and today, the fear of rising yields have been the greater force. As a result, the Canadian dollar is now off by over 1% from the 3-year highs it hit earlier in the week. Also contributing to Canadian dollar weakness over the last two days has been softening oil prices which are now around 9% off their recent highs. Canadian retail sales in January came in stronger than expected but did not move the exchange rate in light of the macro factors already mentioned.
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