What a week it has been for the markets! From fears of inflation and rising bond yields to a reversal of all of that and record stock prices and the Canadian dollar trading at near 2-year highs yesterday. The overall story is familiar by now; economies on both sides of the border are recovering faster than anyone expected and that growth is expected to accelerate even further in the next few months. The concern is that either inflation will cause rates to go up or that central banks will pull back sooner than expected on stimulus programs. That seesaw between optimism and a fear about inflation and rates is what is causing all that volatility. As we have explained before, the relevance of all of that to the USD to CAD is that a rising rate environment will generally be negative for the Canadian dollar. This morning, the concern is winning out over the optimism and yields are once again perking up, stocks are retreating, and the Canadian dollar is a bit softer. The Canadian dollar is actually performing better than its peers this morning and would be down further if it were not for a blow-out jobs number. The economy added 259,200 jobs in February well ahead of economist expectations for a 75,000 gain. Canadian jobs numbers are historically volatile but this is yet another reference point indicating that the economy is heating up and the Bank of Canada might have to pull back on bond purchases more quickly than anticipated.
