Canada’s largest province, Ontario, has declared a state of emergency that will further restrict economic activity. While the measures will likely negatively impact growth for the first quarter, they are not considered impactful on exchange rates as the markets have already pricing in a difficult winter followed by an eventual end of the pandemic in the third quarter. In the US, December inflation figures were being watched more closely than usual given a renewed debate about when the Fed may have to move to taper its bond purchases. But the the figures came in as expected and two Fed officials provided comments interpreted as indicating that the central bank would maintain its supportive stance for the foreseeable future. The ECB provided similar messaging in a seemingly coordinated move. Expect the message from the Bank of Canada to be the same when the time comes; low rates and simulative monetary policy for a while. The Canadian dollar has been volatile and trading in a wider-than-usual range for the first 7 trading days but is now right back where it started the year. Again, we reiterate, until the market has something new to give it direction, we expect the Loonie to trade this way.
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