The Canadian dollar has been underperforming most of this week and that continues today. The underperformance is not particularly large but it is notable that while the US dollar has been trading down against peers all week, the Canadian dollar has been flat. The USD Index (basket of trading partners) is down about 1% for the week, while our currency has just about managed to stay flat against the US dollar. This is happening while oil and equities are trading up and optimism abounds in the broader financial markets. Also, inflation figures and housing starts came in well above expectations earlier in the week and retail sales numbers in November came in well above expectations this morning. All those are indications that the Canadian economy is doing fine (relatively speaking) and that no more monetary stimulus will be necessary so that one might have expected the Loonie to keep up with its G10 counterparts this week. The only thing that happened this week that was bearish for the Canadian dollar this week was the speech by Governor Macklem which painted quite a dark picture of short term economic prospects and noted the strength of the Loonie as an impediment to Canada’s competitiveness in the international markets. So, the Canadian dollar’s underperformance this weeek is either (i) due to the Governor’s speech on Monday, (ii) due to an aberration in flows this week or (iii) the beginning of the partial decoupling of the Canadian dollar from larger global macro trends which have dominated the pandemic era.
