The Loonie started a rally last Thursday from 1.3250 to 1.3127. A stronger crude price and a “risk on” market sentiment helped the Loonie. According to Reuters, Goldman Sachs expects a significant fall in the US dollar next year as U.S. economic growth slows to be more in line with the global average. According to the investment bank, the Canadian Dollar is likely to rise steadily against its U.S. rival over the coming quarters, adding that the Bank of Canada will continue to raise interest rates in the year ahead and that it might move at a faster pace than the Fed.
The Loonie is recovering its losses on Wednesday, after the US dollar gained strength in a “risk off” environment, acting as a safe haven yesterday. The S&P/TSX and S&P/TSX 60 fell 1.29 percent and 1.37 percent respectively. The second main driver of the weak Loonie was crude, which had a 7 percent fall yesterday. The USD/CAD pair moved to a new 5-month high at 1.3318. However, this morning the USD/CAD pair is falling 0.2 percent (stronger Loonie) due to a better mood in equity markets and a moderate bounce of 2.6 percent in crude. The Loonie was also under pressure following Bank of Canada Senior Deputy Governor Carolyn Wilkins’ comments that some market players consider dovish. Wilkins said, “We will need to improve our methods to account for considerations such as distributional effects and financial stability. We also must ensure that the right supporting policy tools and measures are available in extraordinary circumstances.”
The Canadian Liberal government is allocating billions to help Canadian corporations compete with the US and prop up struggling news organizations. Finance Minister Bill Morneau publicized Canada's strong economic performance, but warned that global uncertainty, unpredictable oil prices, lingering trade disputes and deep tax cuts brought in by US President Donald Trump are all posing severe challenges. The USD/CAD started its fall from 1.3306, trading at this moment at 1.3214, a fall of 0.7 percent (stronger Loonie).