The US dollar starts the week up 0.4% against the Canadian dollar as the markets start the week on a bit of a negative note amid concerns about the decelerating pace of economic growth and the growth of Covid variants around the world. This morning, stocks are off their recent records and oil has pulled back from multi-year highs. In Canada, the focus this week will be on the Bank of Canada’s rate decision on Wednesday. In April, the bank surprised the markets and jumped ahead of other major central bank by starting the process of unwinding emergency Covid stimulus and pulling forward its timing for a potential rate hike to of 2022 from 2023. That led to a rally of the Canadian dollar which lasted until June when the US Federal Reserve signaled its own willingness to move sooner than expected to rein in stimulus, leading to a rally in the US dollar and a reversal in gains for the loonie. USD to CAD is now right where it was before the Bank of Canada’s April surprise. Nothing has changed in the macro fundamentals to suggest that the Bank of Canada will once again amend its timeline and so if we do see a change in tone or approach from the Bank of Canada, it will surely lead to further volatility in the Canadian dollar.
