It was the Victoria Day long weekend in Canada and the markets were closed but in terms of the USD to CAD exchange rate, you did not miss much by being in front of the barbeque instead of at your desk. The Canadian dollar starts the shortened week at right around the same levels in ended last week, which is just off of multi-year highs against USD. Equity markets are calm and have been moving up since yesterday. Oil continues to hover around pandemic-era highs. US Treasury yields (a good measure of investor fear of inflation as of late) are flattish. Even cryptocurrencies have achieved a measure of stability after a wild weekend where Bitcoin traded down as much as 60% from its highs. That market is not large enough yet to be impactful on other markets on a daily basis but very large moves in cryptos do seem to somewhat affect other assets and so everyone is keeping a close eye on them. The big questions for the Canadian dollar exchange rate remain the same; will the divergence between the Bank of Canada and the US Federal Reserve remain? Is the observed inflation transitory or here to stay? Where are oil prices going? On that last question, one item on the market’s radar is the ongoing negotiations in Vienna involving Iran which could lead to a re-emergence of Iranian oil on the market and rebalancing of supply and demand. That would be a negative for the Canadian dollar. Also, the focus on central banks has made domestic economic data in Canada more relevant than it has been for a while to the exchange rate. For example, today’s disappointing April manufacturing sales number, if it is part of a trend of disappointing economic data points, could lead to the Bank of Canada to reconsider its relatively hawkish position.
