In yesterday’s note we pointed out that there could be some volatility around Fed Chairman Powell’s speech and that turned out to be the case and the some! Powell committed to keeping rates low and stimulus flowing for a while but he seemed to be giving permission for yields to rise in anticipation of inflation. The markets reacted wildly on both sides of the border. For example, long term (10 year) yields in Canada reached post pandemic highs. That move in yields pushed down stocks significantly and erased the gains of some of the major indices for 2021. The Canadian dollar weakened considerably finishing the day at its lowest levels in a week. Some of those moves in bond yields, stocks, and the US dollar have reversed this morning but the markets remain volatile and that could change quickly. We expect another fast moving day for USD to CAD today. Separate from the global picture, the Canadian dollar is getting a tailwind today from balance of trade data which showed that Canada posted a trade surplus of $1.4 billion in January, the first since May 2019, owing to a sharp 8.1% increase in merchandise exports. It was also the largest surplus since July 2014. The move is largely attributable to greater exports south of the border as the US economy picks up steam.
