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The two-year interest rate differential also is a factor. The Canadian dollar moves in the same direction as the US Canadian interest rate differential 72 times in the last 100 sessions. It was above 90 in August and the first half of September.

Another driver is the general risk environment. Here we use the S&P 500 as our proxy. The Canadian dollar typically moves in the same direction as the S&P 500. Over the past 100 sessions, they have moved in the same direct 69 times. This is the highest for the year. When we correlate the returns, we find a nearly 0.78 correlation over the past 60 sessions, which is also near the highest since July 2014. 

The electoral outcome may pose some headline risk, but market participants may be better served by focusing on the drivers of the Canadian dollar: oil, interest rate differentials, and the general risk environment. 

Marc Chandler
Global head of currency strategy at BBH
Marc to Market

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