The Canadian dollar is flat this morning as the markets focus on a speech expected today from Joe Biden that will detail the scale of his proposed spending package in response to the pandemic. Almost as if to cue up Biden’s speech, US weekly unemployment claims came in well above expectations for the second week in a row, further making the case that the second phase of the recovery will be tougher than the initial rebound, and that government help is needed. The real importance of the Senate elections two weeks ago is that Joe Biden now will have an easier time to pass legislation, and this particular proposal is expected to be absolutely massive and approaching 2 trillion dollars. The first order impact of such spending will obviously be faster economic growth. But the potential second order impacts are less known. US treasury yields could continue to widen and inflation could creep up as a result of this sort of massive fiscal stimulus. For the Canadian dollar, on the one hand, faster economic growth globally will be a positive. On the other hand, widening treasury yields (and possibly a more reluctant Fed) would push up the US dollar and weaken the Canadian dollar. Canadian dollar watchers should also be on the lookout for any serious “Made in America” provisions in the spending proposal which would shut out Canadian firms and hurt the Loonie.
Account to Account