The US dollar steamed ahead yesterday as the popular reflation trade seemed to be unravelling in the face of renewed worries about Covid variants jeopardizing the global economic recovery. For the last several months, the so-called reflation trade has been very popular. The reflation trade involves exposing your assets to faster economic growth, higher price pressures and higher yields. It generally meant that riskier assets like equities traded up while safe-havens like the US dollar traded down. That theme was part of the reason for the USD weakening against CAD earlier this year. Yesterday, the reflation trade seemed to be unravelling as stocks fell by most in many months. Other beneficiaries of the relation trade also suffered with the Canadian dollar falling by most in 13 months. Sentiment has stabilized some this morning with stocks up modestly but the US dollar continues its move up. USD to CAD is up 0.2% and at 1.277 (CAD to USD is at 0.783). The Canadian dollar has now given up all of its gains for 2021 and is now below where it started the year. Oil is also down again, now at its lowest level since June.
