The US dollar starts the month of February up 0.2% against the Canadian dollar. The move is part of broad USD strength against most major currencies and comes despite the fact that stocks and oil are trading up this morning. The break in the correlation between stocks and the USD/CAD exchange rate is probably attributable to the fact that stocks are recovering from an especially bad week which resulted largely from issues specific to the equity market (GameStop, etc.). On the other hand, the modest upside momentum in the US dollar is a response to resistance over Biden’s proposed $1.9 trillion dollar stimulus bill. If the ultimate plan is materially smaller then its impact on global growth will be more limited and that is seen as a negative for USD. Regardless, the moves today are relatively small and certainly do not constitute a trend in one direction or another. While we believe the US dollar will trade up against CAD over time (see our previous posts and our consensus forecast), over the short term we simply expect more volatility.
