It is sometimes dizzying in Canada with the newly installed Prime Minister Justin Trudeau win rave reviews at home and abroad the nation's economy generate some positive surprises the best in the world and the domestic stock market soaring again.
yet all foreign exchange traders seem to want to know is what is the last price of crude oil. Although Canada has made progress in reducing its dependence on the product, the correlation of the local oil dollar climbed, hovering near record highs hit in 2012, according to data compiled by Bloomberg.
Although this was not a bad thing, because the raw rebound since mid-February helped push the loonie higher, it shows that, among all the optimism inaugurated by Trudeau and his plans for the economic recovery of deficit spending, energy prices remain the main driver of the Canadian currency. The risk for bullish traders who have mounted more than 15 percent rally in the exchange rate since mid-January is the oversupply in the oil that has not disappeared causes a price reversal.
"The Canadian dollar is all about oil," said Jennifer Vail, head of research fixed income in Portland, Oregon at Bank Wealth Management US, which oversees about $ 125 billion. "Monetary policy, growth prospects, the outlook for inflation. - All who are certainly a component of the Canadian dollar, but the main driver is still the oil"
The correlation between the 0 day money Canada and oil climbed to 0.67, there from 0.52 four months, according to data compiled by Bloomberg. A reading of 1 means two contracts are negotiated at the same pace.
As recently as December, the dollar and the Canadian crude oil were most strongly correlated between all major currencies and the key export commodity of the country. Although the link between the Canadian dollar to the commodity has since been overtaken by the Russian ruble, it is more closely associated with the oil that the Mexican peso or the Norwegian krone, and the real Brazil is beans soybeans, or the Australian dollar iron ore.
No group of 10 currency was more efficient than Canada in the last three months. The loonie closed Thursday at CA $ 1.2555 per US dollar in Toronto, up 16 percent from its January 19 low of the year. Crude oil finished at $ 47.92 a barrel, up 67 percent over the same period.
The Sharpe ratio of the currency, which measures the returns adjusted for price fluctuations, shows the Canadian dollar had the best results among the 16 major currencies tracked by Bloomberg over time. Citigroup Economic Surprise Indices show Canada is the second best behind Switzerland on the basis of above-forecast economic reports. The composite benchmark Standard & Poor TSX / Canadian equities gained nearly 7 percent this year.
The loonie rally following a recession unprecedented in the currency. After reaching parity with the US dollar three years ago, it fell by 25 percent to touch a low of 13 in January as oil prices collapsed. It was the longest, deepest rout since Canada lifted the currency peg to the US dollar in 1971.
The fall in oil prices and global commodities proved a powerful brake on Canadian economy, pulling the country into recession and wiping 40,000 energy jobs. He sent the economies of oil-producing provinces, including Alberta, grinding to a halt as the canceled projects energy companies, while exposing the decline of traditional manufacturing base of Canada in Ontario and Quebec.
"The oil crisis exposed the lack of diversity in the Canadian economy," said Bipan Rai, executive director of foreign exchange strategy at Canadian Imperial Bank of Commerce in Toronto. Retooling the its economy away from energy dependence "will be difficult because our manufacturing sector has been widening over the past decade. This means that companies need stronger reasons to invest in new capacity expansion in Canada. "
Election Change
The voters who seek kicked change the conservative party that had been in charge since 06, handing a victory to Trudeau and his Liberal party. After sweeping to power in October, Trudeau became an advocate of deficit spending to revive economic growth, retooling away from oil dependency.
Trudeau initial budget presented on March 22 included EI measures for workers affected by the impact of crude oil prices. What it does not include all measures were key to stimulate investment in the oil sector and gas.
the strong linkage to oil prices puts Canada in the company of some of the most volatile economies in the world. Among a total of 42 countries tracked by Bloomberg, the return risk reward loonie was only beaten by the Qatari riyal, Bahraini dinar and the dirham UAE.
pull out oil standards creates challenges for the central bank of Canada, which held its target interest unchanged -rate April 13, partially based on the optimism of the added federal spending to help compensate for the fall-induced oil last year. The nation's economy will grow 1.6 percent this year after a contraction during the first half of 2015.
Although recent data show the underlying resilience of the Canadian economy could eventually lead to higher growth and upward pressure on the Canadian dollar for the time progression of the currency continues on a path to follow oil recovery.
"I would continue to expect the Canadian dollar is heavily influenced by the price of oil," said the Minister of Finance Bill Morneau in March 1 interview with the New York headquarters Bloomberg. "It is a relationship I do not think is likely to disappear."
Bloomberg
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