Why Oil and the Canadian Greenback Are Breaking


For years, it was a rock-solid relationship: When oil costs climbed, the Canadian greenback would additionally get a carry.

However that bond has been damaged. Oil costs hit a seven-year excessive this week, partly as a result of producers are displaying restraint in ramping up manufacturing. West Texas Intermediate crude, the US benchmark, has jumped 50 per cent over the previous 12 months to over US$90 a barrel. In the meantime, the Canadian greenback is usually watering in the meanwhile and has remained stalled close to 79 US cents this week.


Looney struggles to fly

West Texas Intermediate (US$/barrel)

Globe and Mail, Supply: Bloomberg

Looney struggles to fly

West Texas Intermediate (US$/barrel)

Globe and Mail, Supply: Bloomberg

Looney struggles to fly

West Texas Intermediate (US$/barrel)

Globe and Mail, Supply: Bloomberg

What’s behind the weak hyperlink? In a current word, Financial institution of Montreal chief economist Doug Porter stated increased oil costs don’t give Canada the identical financial bump they used to. Capital spending by oil and fuel firms has by no means recovered from the autumn in 2014-16 costs, whereas the US has grow to be a crude oil-producing superpower in its personal proper. The shortage of a pipeline additionally makes it tough to maneuver massive portions of crude oil.

“With export potential out of their fingers, producers are utilizing their earnings to repay debt moderately than make investments,” Stephen Brown, senior Canada economist at Capital Economics, stated in a current report.

One other essential issue is the Federal Reserve, Mr Porter stated. The US central financial institution is rapidly withdrawing its financial stimulus and is certain to boost rates of interest quickly, which has prompted extra demand for the buck – and saved a lid on the loonie.

On the upside, increased oil costs would give a fine addition to the provincial exchequer simply forward of the finances session.

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