All eyes were on the Fed yesterday as the market looked to the US central bank to provide guidance on monetary policy in light of the accelerating recovery. The Fed’s message was unequivocally dovish. Effectively, it indicated that it expects to remain extraordinarily accommodative for a very long time to come and that rates will not be raised through 2023. Investors were emboldened by that supportive stance and stocks traded up to record levels, again. The US dollar also took its cue and gave up ground across the board (0.8% against the Canadian dollar). This morning, USD has regained some ground as investors now worry about inflation and rising long term yields. Nevertheless, the near term macro picture is more clear for USD to CAD. Supporting the Loonie is extraordinary support from central banks for as long as the eye can seem, record stock prices, and strong commodity prices. On the other hand, the risks to the Loonie are rising inflation expectations leading to rising bond yields. For now, the Canadian dollar continues to trade at near 3-year highs.
