The Canadian dollar is showing some softness for the first time in a couple of months. After giving up 0.3% during the day yesterday, the currency is down 0.4% against USD despite the fact that USD is holding steady overall. In fact, the Loonie is the weakest of the major currencies today. Part of the reason is that CAD has had a very strong run in the last few months and by many accounts is overbought. For example, the Interchange Financial Canadian Dollar Consensus Forecast shows the Loonie going 1.5 cents lower by the end of June. The other reason we are seeing a move down in the Canadian currency today is that other central banks are starting to catch up to the Bank of Canada in terms of signaling rate hikes in 2022. New Zealand’s central bank has just hinted at a possible interest rate hike by September 2022. So some of the investment flows that were previously going into the Canadian dollar are now going into the NZ and the related Australian dollars. Despite the move today, the Canadian dollar has gained around 5% since the beginning of the year and has outperformed all other G10 currencies in that period. In the US, Federal Reserve officials have consistently reiterated that they would not change their ultra-supportive monetary policy stance any time soon and until that changes, the US dollar will likely remain mostly out of favour.
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