After two days of significant declines for the US dollar, the greenback is up by a modest 0.3% against the Canadian dollar this morning. At the moment, USD to CAD is at 1.263 (CAD to USD at 0.791). The perverse dynamic in the market right now is that as the delta variant has somewhat clouded the global economic outlook, there is a building expectation that in response to the uncertainty, the US central bank will not begin tapering monetary stimulus until December, which is a couple of months later than the market had forecasted. So, the seesaw in exchange rates right now is occurring because while one hand the markets are somewhat more uncertain about economic recovery (which is bad for the Canadian dollar), on the other hand, the prospect of longer-than-expected asset acquisitions by the world’s largest central bank is increasing risk appetites (which is good for the Canadian dollar). That same dynamic is impacting all asset classes, including stocks, which have gone from a sell-off last week back to record levels, and oil which continues to recover from its recent plunge. On Friday, we should have some further clarity as Fed Chairman Powell speaks and will likely provide guidance as to how quickly the Fed will move to rein in monetary stimulus. The Federal election have yet to seriously impact the Canadian dollar and is currently expected to deliver the status quo of another Liberal minority government.
