The story of lumber prices and their impact on the Canadian dollar has really not gotten enough attention. Lumber prices rallied in the first few months of this year to peak in May at more than 3 times the price at which they were trading the prior several years. The incredible surge had to do with a combination of demand from the residential construction boom, as well as various supply constraints. Since that time, prices have dropped right back to previous levels. Of importance for the Canadian dollar is that lumber is an important export product for Canada and a driver of real demand for the Canadian dollar. There was a lot going on in that period of surge and decline that impacted the Canadian dollar but certainly the price action in lumber was one of those factors. Today, we are seeing some of the remnants of that impact in the June merchandise export figures released by Statistics Canada. Exports growth slowed substantially, largely because of the decline in lumber prices. Of note is that the lumber price plunge continued in July so we are not quite done seeing its impact on export figures. More broadly, the markets are stable this morning with USD to CAD is currently at 1.261 (CAD to USD at 0.793). The euro continues to strengthen against most major currencies as a result of hawkish comments out of the European Central Bank.
