Well, what a week! I can’t remember seeing such sustained volatility in the markets for a long time. The over-riding theme remains the almighty dollar, currently at 6 year highs against the Loonie and 11 year highs against the Euro. Although everyone knew it was coming the sheer size of yesterday’s ECB QE announcement caused some shock and with concerns about the make-up of the next Greek government will ensure the Euro stays on the defensive for the foreseeable future. Those analysts that are calling for Euro parity with the USD could soon be proved right.
Canadian CPI came out yesterday and was none too pretty (-0.7%), clearly this was in the BoC’s thoughts regarding Wednesday’s surprise rate cut.
Another theory regarding the rate cut is that the BoC was concerned about the Loonie appreciating against other currencies due to the Loonie performing better against the USD than other G7 countries are doing. Either way the Loonie here will keep exporters happy.
The graph below show s that over the last 6 months , in spite of the Loonie crashing against the USD , the Loonie has still appreciated by 5% against the Euro.