The Canadian dollar grew 0.7% in January, above the previously estimated 0.5%. Total economic activity is now only 3% below pre-pandemic levels in February of 2020. There is really nothing surprising in this new data. We already knew that economic activity has rebounded better than anyone could have expected at the outset of the pandemic due to hugely generous government spending programs and unprecedented support from the Bank of Canada. The pattern is similar to what is happening elsewhere in the developed world, including in the US. It is the secondary effects of the fiscal and monetary stimulus that are now driving exchange rates. These secondary effects include things like the slow creep up of long term yields, potential bubbles forming in housing and stocks, the fear of inflation, and the impact on the markets when central banks begin tapering their stimulus. This morning markets are largely flat with equities and oil looking to open unchanged from yesterday. USD to CAD also looks to be near flat relative to yesterday’s close.
