Currency movements are not about the overall state of an economy they are about the direction of change.
USD/CAD is a perfect example. The Canada is in better shape than the US by almost any measure — employment, growth, interest rates, trade etc.
But that’s all priced into the market. What matters is the changes at the margin.
Right now, the US economy is picking up momentum while Canada is cruising. Investment in the United States is increasing while inflows into Canadian resources have stalled. And today’s BOC decision highlights that Canada’s central bank has moved to a neutral stance (from hawkish) while the Fed is moving to a neutral stance (from dovish).
Those may seem like small changes but that’s what matters in the FX market.
Expect USD/CAD to gain more momentum if last week’s high of 1.0342 breaks.
Update: I spoke with Bloomberg after the BOC decision, here’s the story.
