The Canadian dollar climbed above 80 cents US on Monday morning for the first time since the summer of 2015.
The loonie was at 79.97 cents US when North American stock markets closed on Monday, pushed by strong data on manufacturing sales and a glowing assessment of the country's economic outlook by the International Monetary Fund.
Since bottoming out at the start of May, the dollar has gained nearly 10 per cent through June and July, buoyed by a series of strong data points about the Canadian economy, including a strong job market, booming retail sales and factories ramping up production.
While the loonie has been doing some of the heavy lifting on its own, it's also getting a boost from weakness in the U.S. dollar. After hitting its highest level in 14 years shortly after Trump's election on a promise to lower taxes, boost infrastructure and cut red tape, the U.S. dollar has lost ground this summer amid the new administration's inability to get anything done.
"About one-third of the Canadian dollar's move is due to specific, Canada-centric factors," Bank of Montreal economist Doug Porter said last week, "and the rest reflects broader weakening in the U.S. dollar since that point."
The most recent catalyst for the upswing was the Bank of Canada's move to hike interest rates earlier this month, but "it was already turning the corner in the weeks prior," Porter said.
The loonie is surging in part because the gloom over commodity prices has lifted, even if prices are still nowhere near their former highs.
"Until recent weeks, commodity prices had been a headwind for the loonie, trending lower since the start of the year," Porter's colleague at BMO, Benjamin Reitzes, said.
"That turned sharply in late June, as oil perked up, [and] the recent bounce in commodities has added to the loonie's momentum."
Earlier this year, traders were betting heavily against the Canadian dollar. But that all changed in June when the deputy governor of the Bank of Canada first started musing publicly about raising rates.
After seven years since a hike, the sudden optimism caught traders by surprise. They rushed to cancel their short positions — financial contracts they had placed that allowed them to make money when the loonie lost ground.
In barely six weeks, more than 94,000 such contracts were unwound, Bloomberg data shows — a massive move in a such a short time frame.
"Markets were consistently looking for the Canadian economy/housing market to stumble," Reitzes said. "The Bank of Canada shift caught short sellers off guard, forcing them to cover their positions as the loonie strengthened, driving even more buying."
While that's unlikely to last, the impact of the shorts taking their money off the table has already been felt. And there are other factors at play that could give the loonie rally some legs.
Oil price rebound
Compared with other commodity-reliant currencies like the Australian dollar, the Brazilian real and the Russian ruble, the loonie still isn't being fairly priced, economist David Rosenberg at Toronto money manager Gluskin Sheff Inc. said.
"While it is fair to say that the Canadian dollar is no longer a screaming buy at current levels," he said, "the rally has more to go."
He added: "Really, in recent weeks all we have seen is the Canadian dollar move from significantly undervalued to more fairly valued."
If the loonie has a few more cents of runway as Rosenberg suggests, that could be a double-edged sword for the resurgent Canadian economy — good news for Canadians' purchasing power, but bad news for Canadian businesses trying to export goods and services overseas.
"While those planning a vacation abroad are no doubt pleased with the Canadian dollar's recent run," Reitzes said, "the Bank of Canada may be a little more apprehensive."