The Canadian Dollar takes back two months in ten sessions
The Canadian Dollar trades at its strongest against the US Dollar since the second week of June, with the rate holding just above 1.3900 into the afternoon.
The Canadian Dollar has reclaimed its strongest position against the US Dollar in over two months, holding just above 1.3900 for the majority of the day. This marks the fourth consecutive session of decline and the seventh in ten sessions, with Monday's entire 35-pip range confined within Friday's trading range. The last time the Loonie traded at this level was 43 sessions ago, during the time when the Strait of Hormuz was shut.
The recent advance in the US Dollar against the Canadian Dollar has now been reversed, despite the ongoing escalation of the war. The change in the situation lies in the mechanism rather than the news. The Strait of Hormuz shutdown initially benefited the US Dollar due to its role as a safe-haven, but now, a 3% increase in oil prices acts as a terms-of-trade payment to Canada, a net exporter.
Additionally, the Bank of Canada's inflation projections have been adjusted based on the Loonie averaging around 71 cents US over the projection horizon. The Bank of Canada's rate decision on December 9 is already priced in, with no domestic factors to counteract the move. The current bullish run in the Canadian Dollar is driven by factors such as the Bank of Canada's interest rate policy, crude oil prices, the health of the Canadian economy, inflation, and the trade balance.
The health of the US economy also plays a significant role, given that Canada is its largest trading partner.
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