Key Takeaways

  • The Canadian dollar has benefited from the “reflation” theme of a global economic recovery, massive fiscal stimulus and steepening yield curves.
  • Rising oil prices coupled with higher capital investment in oil production in Canada has increased demand for Canadian stocks and the Canadian dollar.
  • Canada’s slow vaccine deployment and its potential impact on economic growth has the Bank of Canada holding its benchmark interest rate steady.

Canadian Dollar (CAD) Spot (mid-market) rate = C$1.2665 / USD (3:00pm, March 4, 2021)

Over the last 30 days, the “commodity currencies” – including the Canadian dollar – outperformed most other G-10 currencies. During the last week of February, CAD strengthened to C$1.2468, marking the first time the USD/CAD currency pair traded below C$1.25 since February 2018.

G-10 Currencies Spot Returns vs USD (%) last 30 days as of 3/4/2021



Source: Bloomberg March 2021

Several themes are currently driving the value of the Canadian dollar:

  • “Reflation trades” benefit Canada’s small, commodity-rich economy. Expectations of a global economic recovery, massive fiscal policy stimulus, and steepening bond yield curves continue to fuel demand for “risky” assets, including foreign assets/currencies and commodities, as they have since Q4 2020.

  • Energy prices are soaring. So far this year, prices of energy commodities have risen more than other commodities – gasoline (+27%), crude oil (+24%), heating oil (+23%), and natural gas (+9%). Increased capital investments in oil and gas production has in turn helped boost investment demand for Canadian stocks – Canada’s S&P/TSX Composite Index has outperformed the S&P 500 so far this year.2 This week’s surprise decision by OPEC+ to maintain current oil production levels led to another surge in oil prices.

  • Canada’s slow vaccine deployment may impact economic recovery. Canada’s pace of vaccine deployment, currently hindered by shipment delays, is lagging significantly behind other developed nations. Less than 5% of the Canadian population has been vaccinated, in contrast to 16% in the US and 31% in the UK.3 As a result, analysts predict that the Canadian economy may contract in Q1/maybe into Q2, before a healthy rebound in H2. The BOC expects the economy to grow by almost 4% in 2021.4

  • The Bank of Canada remains dovish. The BOC meets on March 10 and is expected to hold rates steady at 0.25%.  Most analysts expect the BOC will keep rates steady for the remainder of 2021, even as it may begin to slow (taper) its QE program later in the year.5

  • CAD appreciation is in-line with a broadly weaker US dollar. For much of the second half of 2020,  the “weak US dollar” story was the primary driver of the currency markets. Rising commodity prices also had an impact, which led to outperformances by commodity currencies, including the Canadian dollar.

Final comments:

We remain bullish the Canadian dollar over the coming year, as the Canadian economy benefits from global reflation. Our own country’s proposed $1.9 trillion fiscal stimulus package should provide a boost to Canadian exports. Should issues related to the vaccine rollout remain, however, we may see a weaker CAD compared to its G-10 peers. Here’s the good news -- a weakening CAD may provide opportunities for firms to buy at more attractive levels. We invite you to talk to your SVB currency advisor to learn where those levels might be.

Please feel free to reach out to your SVB Currency Advisor for a deeper discussion about FX, what impact it may have on your firm, and ways to mitigate risk.

Scott Petruska, CFA Headshot
Written by
Scott Petruska, CFA
FX Market Insights

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1,2 Bloomberg

3 “Why Canada is falling behind in Covid vaccinations”. BBC News. February 19, 2021.

4 “Monetary Policy Report – January 2021”. Bank of Canada. January 20, 2021.

5 “Bank of Canada’s next move to tapering asset purchases: Reuters Poll.” Reuters. March 5, 2021.

This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

Foreign exchange transactions can be highly risky, and losses may occur in short periods of time if there is an adverse movement of exchange rates. Exchange rates can be highly volatile and are impacted by numerous economic, political and social factors, as well as supply and demand and governmental intervention, control and adjustments. Investments in financial instruments carry significant risk, including the possible loss of the principal amount invested. Before entering any foreign exchange transaction, you should obtain advice from your own tax, financial, legal and other advisors, and only make investment decisions on the basis of your own objectives, experience and resources.

Opinions expressed are our opinions as of the date of this content only. The material is based upon information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. The views expressed are solely those of the author and do not necessarily reflect the views of SVB Financial Group, Silicon Valley Bank, or any of its affiliates.

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