The Canadian dollar performed poorly today and the move was puzzling at first but on second look shows why it makes sense.
Today the Canadian dollar rose by 0.5% which is a good gain but much less than the +1.2% for the Australian and New Zealand dollars. The performance of the Canadian dollar is also lower than that of the pound, yen, and euro. This is despite a strong day for stocks, with the S&P 500 rising 1.2% to a record high and oil rising $1.33 to $79.22.
Why is my color slow?
I think this has to do with the Bank of Canada. Last week we saw the Bank of Canada (and the European Central Bank) remain cautious about further interest rate cuts. I think this is about to go away. Central banks don't like too much separation from the Fed, and if the Fed is dovish today and signals two cuts, it will lead to a more dovish stance from the Bank of Canada.
In short, the Fed will give the Bank of Canada permission to signal an interest rate cutting cycle. I think this is appropriate given the new cracks in Canada's housing sector. The strong start to the spring market faded quickly and inventories continued to rise. The Bank of Canada cut may also have been more of a signal for sellers to list than a signal for buyers (who can't qualify for a mortgage anyway) to buy.
Looking back, today's USD weakness shows USD/CAD consolidation.
USD/CAD daily
I think this is the right way to look at it now as we wait for the US or Canadian economy to falter or achieve a soft landing.