Stocks are once again hitting record levels globally and oil continues to climb up as a decline in infections and the increasing likelihood of a large ($1.9 trillion) and speedy US stimulus package feed optimism about a faster-than-expected recovery in economic activity. If the pattern and correlations of the last few months were holding, on a day like this, we would see the US dollar trade down broadly, especially against currencies like the Canadian dollar. That pattern had been consistent throughout the pandemic but has broken down over the last week or so. One reason for the breakdown of the usual correlation between stocks/oil and the Canadian dollar is that the recent bout of optimism is largely due to the prospects of the Biden fiscal stimulus efforts. Those efforts gained further momentum as Janet Yellen emphasized the need for a larger package quickly. Regardless, since fiscal support seems to be replacing monetary support, there is a sense that the more successful the Biden administration is, the more quickly the Fed will pull back. Those adjusting Fed expectations are what is keeping the US dollar stronger than before. Finally, USD short positions are still elevated from last year which generally accelerates any fundamental move to the upside.
