At least one currency strategist is surprised by the Canadian dollar’s flat performance over the past year considering the boom in commodity prices and the Bank of Canada’s timeline for hiking interest rates.
The Canadian dollar is kicking off the year at roughly the same level where it was trading a year earlier – hovering around 79-cents U.S.
“I’m surprised the Canadian dollar is weaker than it was 12 months ago,” said Kit Juckes, chief foreign exchange strategist at Société Générale, in an interview Friday.
The loonie has typically been referred to as a petrocurrency since it tends to rise and fall with oil prices, and though that relationship has weakened over the past several years, it seems the loonie hasn’t responded at all to the recent surge in commodity prices.
American benchmark West Texas Intermediate crude began 2021 trading around US$50 per barrel and has climbed to US$80 per barrel this week.
Oil prices have been underpinned by demand outpacing supply, turmoil in crude-producing countries such as Libya, and the energy crunch in the European Union.
“All of this supports the oil price, so it’s hard to imagine the oil price getting a sustained fall in the near term. That, and the broader commodity boom that Canada is well placed for, it seems to me the Canadian dollar has underperformed in the last six months relative to all of those factors,” Juckes said.
He pointed out that the current commodity price boom is creating a positive environment for resource-oriented countries, which includes Canada.
Another factor impacting the loonie’s performance, according to Juckes, might be that there’s more focus on the U.S. Federal Reserve’s next moves rather than the Bank of Canada.
“We get many more headlines, and there’s much more focus all around the world, on the U.S. Federal Reserve and what they’re going to do and when they’re going to get their first rate hike. In all reality, the Bank of Canada is more likely to hike rates more than the Fed this year,” he said.
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