This morning the Canadian dollar is holding steady at just below the 6 year highs and is the best performing G10 currency so far in 2021. So, it is probably a good time to review the main reasons for Canadian dollar strength:
- USD weakness. The US dollar has been consistently declining against most major currencies as the pandemic panic has given away to a strong economic and financial recovery.
- Oil and commodity prices. The price of oil is now at its highest levels since mid 2019. Other commodities have generally traded up as well, with the surge in the price of lumber being especially notable.
- Bank of Canada. The Bank of Canada has taken the lead among major central banks in signaling a coming end to monetary stimulus through tapering of asset purchases and interest rate hikes.
- Confidence and stock market records. The generally positive sentiment in the markets and the global economy favours “risk” currencies like the Canadian dollar.
- Canada’s economic and pandemic performance. Globally, Canada is viewed as having weathered the health and economic crisis relatively well.