The Canadian dollar is up 0.4% this morning and looks set to finish just below its highest levels since April of 2018. At its lows for the year, at the beginning of the pandemic in March, the Loonie was 12% lower than it is now. The Canadian dollar’s recovery is all the more remarkable given that oil is down 20% this year. But the driving force has not been Canadian dollar strength. Rather, it has been almost all about US dollar weakness. The USD index (a broad measure of the value of USD against its major trading partners) is down 8% this year. As we have been saying for the last several weeks, we expect traditional correlations to reappear in 2021 and we migrate towards a more “normal” economic and financial situation. That is, we expect the Canadian dollar to be more closely tied to the Canadian dollar and we expect the Bank of Canada to become more activist in its views about the Loonie. Also, as global economic conditions diverge in various countries and regions, we expect domestic economic data to come into focus once again as a driver of exchange rate movements. Happy New Year!
