March Q1 - The Big Picture

During the onset of the COVID-19 pandemic, global markets struggled to forecast the economic impact amid considerable uncertainty. Not surprisingly, a traditional “flight to quality” ensued and the United States—particularly U.S. Treasury debt instruments—benefited from significant capital inflows. Conversely, the value of the Canadian dollar fell against its U.S. counterpart, as outlined in the accompanying graph. The loonie tumbled to a low of US$0.681 in the early stages of the pandemic, its weakest trading level in 17 years. Subsequent expectations for a material rebound in global economic activity and the commensurate increase in demand for Canadian resources provided material support for the Canadian dollar. It was sufficient to drive the currency to US$0.833 by June 1, 2021, a fresh six-year high. Since then, however, market optimism has faded. Several challenges continue to buffet the currency. Some of these influences are transitory, but markets will continue to weigh the long-term implications of both monetary and fiscal policy decisions as well as the fundamental structural issues that continue to face the domestic economy.

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