According to Francesco Pesole, a foreign exchange analyst at ING, the Canadian Dollar (CAD) has demonstrated greater resilience compared to other G10 currencies in the face of the US Dollar’s (USD) resurgence since the start of the week. Notably, the CAD remained stable on Monday, even as other currencies experienced gains against the USD.
CAD and USD Relationship Restored as Tariff Concerns Diminish
“The CAD and USD have once again begun to move in tandem, a pattern that was typical before the previous administration’s imposition of tariff threats against Canada late last year. This renewed correlation likely stems from Canada’s exemption from the April 2nd reciprocal tariffs. Consequently, market participants are seemingly reverting to viewing the CAD as an indicator of US economic growth sentiment, a crucial factor influencing Canadian economic activity, thus strengthening its correlation with the USD.”
“Since the aforementioned shift, the observed volatility of USD/CAD has been notably lower than that of other G10 currency pairs, reinforcing the renewed connection between the USD and CAD. However, the 1-week at-the-money (ATM) volatility is currently trading at approximately 1.30 relative to 1-week historical volatility. This is atypical for USD/CAD leading up to federal elections, suggesting that markets are assigning a higher degree of foreign exchange risk to the upcoming vote.”
