The Canadian dollar has had an interesting ride this week (see graph). We started the week trading within range of where the exchange rate has been for about a month. Then on Tuesday, the Loonie was one of the weakest major currencies and gave up about 1% against the US dollar as oil prices and stocks traded down, partially in response to demand concerns precipitated by a worsening Covid situation in large parts of the world (particularly India and the EU). Some speculated that the federal budget and the large projected debt figures announced on Monday may have also contributed to the weakness in the Canadian currency. But then on Wednesday, the Bank of Canada’s monthly statement surprised markets with its optimistic view of the economy and strong indications that rates would be raised in 2022 as opposed to the previous guidance of 2023. The Loonie immediately surged by over 1% and regained its lost ground and then some. The net result is that the Canadian dollar is now trading at the high end of the range in which it has been trading for the last few weeks. With stocks flat this morning and little in terms of new economic data expected today, USD to CAD is likely to hold around these levels for the rest of the day.
