The Canadian dollar is outpacing its major competition so far this year, and many analysts believe there is room for improvement as economic recovery builds momentum, furthering chatter of reduced stimulus.
February's job growth was much stronger than initially expected, helping the loonie soar to a three-year high last Friday. While the U.S. currency also outperforms most of its peers with the help of surging Treasury activity. The Canadian dollar has clawed its way to a 2 per cent advance in 2021, leading a list of 31 major currencies tracked by Bloomberg. As of this morning, it was trading at 81 US cents.
A strengthened economy increases the likelihood of the BoC slowing its roll on asset purchases. Even with the central bank suggesting its policy rate to remain still until 2023, suggestions of stimulus decreases have become more frequent.
During Friday's price growth, TD Securities withdrew its short NZD-CAD trade, amassing a 2.48 per cent profit. They did maintain their euro-loonie stance, though.
The Canadian dollar has showed its teeth in the face of increased U.S. yields with the help of Canadian rates being valued higher than their American neighbors, through initial stages of the curve, explained Scotiabank senior strategists Shaun Osborne and Juan Manuel Herrera in their outlook released last Friday.
Bipan Rai, chief of foreign-exchange strategy for the Canadian Imperial Bank of Commerce believes the USD-CAD exchange rate could "come under additional pressure." He added that crude prices are "somewhat firm", adding another feather to the Canadian currency cap.
Today's U.S. Federal Reserve policy meeting revealed plans of a rate stall despite an outlook of economic growth. "The state of the economy in two or three years is highly uncertain," explained Fed chairman Jerome Powell. "I wouldn't want to focus too much on the exact timing of a potential rate increase that far into the future," he added.