Happy New Year! What will the new year bring in the financial markets? Only time will tell and we have our views which we have shared previously. What we can say for certain is that the first full trading day of 2021 looks a lot like the last few months of 2020. Stocks are up, oil is up and the US dollar is grinding lower against most major currencies. Against the Canadian dollar, USD is now trading just below the 1.27 level this morning, down a further 0.2% from the close in 2020. On the economic calendar, the only thing that could possibly move the needle on USD/CAD is the December inflation number which is scheduled to be released on Wednesday morning. On the political front, the US senate elections in Georgia on Tuesday are potentially material to USD/CAD. If the Democrats win both seats, that may cause further weakness in USD as it will be perceived as giving Biden a freer hand to pursue his expansionary fiscal agenda. On the geopolitical front, there are heightened tensions in the Persian Gulf between the US and Iran. If the next couple of weeks do not bring any conflict then that will likely put modest downward pressure on oil which will in turn push the Loonie lower. Finally, here in Canada, what matters most is the Bank of Canada. Governor Macklem ended the year by being increasingly explicit about his concern that the rise in the Canadian dollar is an impediment to growth and competitiveness. Further attempts to to “jawbone” are likely in the next few weeks.
