Loonie’s underperformance baffles veteran currency strategist


At least one currency strategist is surprised by the stagnation of the Canadian dollar over the past year, given soaring commodity prices and the Bank of Canada’s timeline for rising interest rates.

The Canadian dollar starts the year at about the same level it was trading a year earlier, hovering around 79 cents US.

“I’m surprised the Canadian dollar is weaker than it was 12 months ago,” Kit Juckes, chief currency strategist at Société Générale, said in an interview Friday.

The loonie is generally referred to as a petro-currency because it tends to rise and fall with oil prices, and although this relationship has weakened in recent years, it appears that the loonie has not reacted at all. the recent surge in commodity prices. .

US benchmark West Texas Intermediate crude started in 2021 at around US $ 50 per barrel and climbed to US $ 80 per barrel this week.

Oil prices have been supported by demand exceeding supply, unrest in crude-producing countries such as Libya and the energy crisis in the European Union.

“All of this is supporting the price of oil, so it’s hard to imagine that the price of oil will drop sustainably in the short term. That, and the broader commodities boom for which Canada is well positioned, it seems to me that the Canadian dollar has underperformed over the past six months relative to all of these factors, ”Juckes said.

He pointed out that the current surge in commodity prices creates a positive environment for resource-based countries, including Canada.

Another factor affecting the loonie’s performance, Juckes said, could be that there is more focus on future moves by the US Federal Reserve rather than the Bank of Canada.

“We’re getting a lot more headlines, and there’s a lot more attention all over the world, on the US Federal Reserve and what it’s going to do and when it’s going to get its first rate hike. In fact, the Bank of Canada is more likely to hike rates more than the Fed this year, ”he said.

About Natalee Broderick

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