The Canadian dollar has ridden the rally in energy prices for the past month but it's facing strong selling pressure today.
Oil is near a three-month high but natural gas prices are down nearly 15% in two days after an explosion at a US LNG export facility. The market is also struggling with risks around global bond markets as inflation spirals. In turn, there are fears about rate hikes sapping global growth.
The US dollar is up 77 pips against the loonie today to 1.2635, with most of it coming in the past hour alongside broad bids for the US dollar.
One of the triggers for the USD rally was the ECB decision and the growing chance of a new sovereign debt crisis in the eurozone.
For the Canadian dollar specifically, the Bank of Canada's report on financial risks today focused on housing. It's a market that was extraordinarily strong over the past two years and that's coming off several years of strength before that. By any measure, Canadian home prices are way above historical comparables and even international comps.
The BOC highlighted that people who took out 5-year fixed mortgages in 2020-21 (which are the Canadian standard) could face resets costing 45% more in 2025-26. In addition, variable rates are climbing quickly as the BOC leads global central banks in hiking rates.
At the moment, I think worries about housing everywhere, global inflation and rate hike risks are drowning out the CAD -specific risks around housing but as it becomes clearer that prices are falling, that will change.
At the same time, if/when the Canadian consumer pulls back, it will only further boost Canadian terms of trade, particularly if energy prices stay high.
At the top of the hour, BOC Governor Tiff Macklem will hold a press conference. His comments on housing will be closely followed.