The US dollar rally is back on after pausing yesterday. This morning the USD up 0.7% against CAD and the greenback is now roughly 5 pennies higher than the lows it hit in early June. USD to CAD is at 1.256 (CAD to USD: 0.796). The US dollar rally started with the Fed indicating its willingness to begin tapering asset purchases. But over the last few days the move up in USD has been caused by other factors. In particular some doubt is beginning to creep into the overwhelmingly optimistic view of the global recovery. There is anxiety about the spread of Covid variants in Asia and their potential impact on growth expectations. Japan, for example, announced a state emergency for the upcoming Olympics in Tokyo. Further fueling the talk of a deceleration in growth are recent disappointing economic data points from around the world (including US weekly jobless number today). All in all, the so-called reflation trade is on hold for now. That change in sentiment is causing a pullback in stock indices (though the retreat comes from record levels) and a move into the safety of bonds (ie: yields are going down again). Commodities are also coming off recent highs. Risk metrics like the VIX are perking up to their highest levels of 2021. That same preference for risk-off is also what is fueling the US dollar rally as investors seek the perceived safety of the greenback and move away from riskier currencies like the Canadian dollar.
