The Canadian dollar has found a level at just above 1.300 this week and it is not budging either way. A combination of factors have made the Canadian dollar very steady this week. First, there is the Thanksgiving holiday week in the US which means the markets are slower than usual in North America. Second, it is the absence of important economic data points this week that might move the exchange rates. Third, it is the fact that the US political was reduced to risk late last week as the Biden transition moved forward. Fourth, it is the emergence of vaccines over the last several weeks which have now given the markets an ability to approximately time the end of the pandemic. Finally, the markets priced in the large second wave across the developed world weeks ago. As we have been saying for a few weeks, we believe that we are entering a period where domestic considerations will become more important to exchange rates than they have been since the beginning of the pandemic. Thus far, the primary driver of the Canadian dollar on any day has been the perception of risk due to global developments. As a result, the Loonie has been highly correlated with stock markets. While the Loonie will always be a risk-on currency, we think that we are about to enter a period where domestic economic/political considerations will begin to matter again. In that vein, the news yesterday that Canada may be handicapped in its ability to be an early vaccinator, given the absence domestic manufacturing, may ultimately matter to the exchange rates if it means that the health crisis ends later in Canada than it does in other developed countries.
