Financial markets are already pricing in a pickup in U.S. growth and an increase in demand for commodities and energy. This comes as U.S. vaccinations are taking off and as negotiations begin on its massive infrastructure program. With the service sector still struggling, U.S. manufacturing looks to be taking the lead on bringing the global economy out of its modern-era depression. Our North American trading partners will likely be the most immediate beneficiaries.
The Mexican peso has strengthened in trading since the announcement of the U.S. fiscal stimulus, while the Canadian dollar has appreciated by 9% versus its major trading partners over the course of the past 12 months. Because of Canada’s resource sector, we would expect its currency to increase in value along with increased demand for basic materials.
Reported demand for building materials has certainly increased during the pandemic-induced U.S. housing spurt, while supply has been constrained by U.S. tariffs. We expect that trend to continue, especially if the U.S. begins a period of significant infrastructure investment.
And if the U.S. recovery were to become sustainable, as we anticipate, we would also expect the demand for energy to pick up as well. The price of WTI crude oil has climbed back to January 2020 levels. In addition, since it will be years before the fleet of U.S. transportation moves completely away from fossil fuels, and because of OPEC’s intent to keep prices near the break-even price of fracking, a best guess is that the price of oil will maintain its current level.
The increases in commodity and energy prices will be a sign that the U.S. recovery is underway. Upward pressure on the Canadian dollar will have positive effects on the value of Canadian output, with increased demand for its products and increased buying power for Canadian consumers having a positive impact on both economies.