The Bank of Canada tilted hawkish in its April statement and in doing so moved ahead of the US Federal Reserve in projecting a pullback in monetary stimulus. The Canadian dollar then rallied for the next two months and it started last week about 3% higher than before the April statement. Then this past Wednesday, the Fed finally took its own hawkish turn and within the span of 3 days, CAD gave up most of its gains against USD from the last couple of months. During the rally, the loonie had also been helped by record equity prices and multi-year highs in oil prices. The Fed’s move pushed those markets off their highs and further pressured the Canadian currency late last week. This morning, the markets have stabilized a bit with oil down just slightly from Friday and stocks looking to open up after selling off on Friday. As such, USD has lost some steam and CAD has regained 0.6%. Where we are now is that Canadian dollar is at its highest level since late April but still a penny below where it was prior to the Bank of Canada rally. While further USD to CAD volatility should be expected as the markets adopt to the new monetary conditions, in the very short term we think in the short term the loonie has found a level from which it will not diverge much.
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