The Canadian dollar gained about 4 pennies in the first two weeks of October and it has been mostly range-bound since then. In fact, despite some volatility around various news headlines, the exchange rate has been hovering at between the 1.235 and 1.240 for most of the last two weeks. This morning, we are right in the middle of the range with USD to CAD at 1.238 (CAD to USD is at 0.807). The primary reason for the loonie’s move up in the first couple of weeks of October was a rally in oil prices to multi-year highs. Also helping the loonie during that period was generally positive sentiment in the markets which always helps the Canadian dollar against the safe-haven US dollar. That optimism also helped pushed stocks to record levels. What will move us out of this range? Well, we could see oil prices ease. Certainly, we are hearing noise about geopolitical pressure on oil producers to begin pumping more to meet global demand. And overall market sentiment could turn around pretty quickly in this still somewhat uncertain environment. But there are other risks to the Canadian dollar as well. For example, this Wednesday, we hear from the US Federal Reserve and the US central bank is widely expected to announce that it will begin to unwind its bond purchases. But it could potentially go further in signaling an end to accommodative monetary policy and that would push the US dollar up broadly. Needless to say there are always risks in both directions but we continue to believe that the US dollar is more likely than not to regain some of its early October losses against the Canadian currency.
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