The US dollar is up 0.2% against the Canadian dollar this morning as equities and oil start the day slightly to the upside. We do not expect much volatility today as we await tomorrow’s key economic data points out of the US and Canada. So far this year, the USD has trended to the upside and it is worth reviewing the reasons for that modest strength. First, the nearly unstoppable rise in stocks last year has lost momentum this year which generally pushes the US dollar higher. Also, the global difficulties in vaccine rollout is dampening some of the expectations about the state of economic recover in 2021, which is supportive of a stronger dollar. Adding to the mix is comments from the Fed suggesting that some elements of its massive monetary stimulus will come to an end sooner than later. Finally, USD short positions are elevated from last year which generally accelerates any fundamental move to the upside. In Canada, some of the USD’s strength has been buffeted by rising oil prices but the Loonie has not been entirely immune to the US dollar’s strength and is down year to date.
