The US dollar surged this Monday after the release of the manufacturing survey, which indicated that activity in the manufacturing sector expanded for the first time in over a year and new orders in the US increased. This led to markets lowering the likelihood of the Federal Reserve Bank cutting rates, helping the US dollar in making broad gains against most G10 currencies, including the Canadian dollar. In contrast, the Bank of Canada’s Business Outlook Survey, also released on Monday, presented a much more sober outlook, with most companies anticipating lower than normal demand for the next year. The Canadian dollar is regaining some momentum on Tuesday morning, buoyed by a strong rally in the price of oil. However, what’s becoming increasingly clear is that the US economy continues to absorb a higher interest rate environment better than the Canadian economy. As the likelihood of a rate hike by the Fed in June decreases and the likelihood of a cut by the Bank of Canada increases, more investment flows out of the Canadian dollar and into the higher-yielding US dollar.
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