One question we get from clients frequently at the moment relates to the CAD’s correlation with crude oil—or the apparent lack of one at the moment Recent history and the characterization of the CAD as a “petro currency” suggests a strong and persistent, positive correlation between crude oil prices and the CAD. But it was not always so and probably overstates the CAD’s relationship with crude oil to some extent. Evolving financial and economic conditions and priorities mean these relationships should always be treated as dynamic rather than static. Yes, we expect crude oil prices to rise, modestly this year; but no, we do not think the CAD will necessarily strengthen materially as a result.
With the Fed the only major central bank expected to tighten monetary policy in the near term, we expect wider interest rate differentials to support the USD going forward and we remain comfortable with our mid-year target of 1.40 for USD/CAD (or 71.5 cents).