flight to safety bid for US dollars at the expense of other currencies, but the loonie hadn’t benefited from oil’s gains prior to the threat of war showing up on markets’ radar screens,” he said in a note to clients Tuesday.
WTI crude has now climbed 71 per cent from the start of the year to over US$120 per barrel. Meanwhile appears stuck, trading within a range of three per cent. Shenfeld says that this indicates that the oil-loonie link may have been severed, which could have significant implications for energy producers in Canada. “[Energy firms] typically take it into account in thinking about overall hedging strategies for both the commodities price and the exchange rate. It also means that Canada’s inflation rate doesn’t get the usual cushioning effect from a rise in the loonie’s foreign purchasing power when gasoline is most expensive,” he said.
According to the CIBC economist, statistically, the correlations between the Canadian dollar and oil prices have been 0.88 in the prior decade. Meanwhile, a correlation of 1 means the currency is moving in complete lockstep in the same direction of crude prices. Since 2018, this has weakened to 0.75, with the correlation “essentially disappearing” since last year, although there hasn’t been sufficient time to declare the link officially dead, Shenfeld noted.
