Chart of the Week: Where did Canada’s petro-currency go?

Remember when oil prices shot up, the loonie would move with it? On the one hand, it was an inflation shield, guarding against rising import costs when inflation spiked. On the other hand, it made our manufacturing goods more expensive in global markets.

This time around, the Canadian dollar is staying weak at around US$ 0.73-0.74/CDN$ despite oil trading north of US$100/bbl.

What’s going on?

1.  First, is a flight to safety to U.S. assets post the war in Iran, lifting the greenback against other currencies (including the loonie). 
2. Second, is interest rate divergence with the Bank of Canada cutting more aggressively than the Fed. 
3. Third, is a longer-term decoupling trend, as shown in our Charts of the Week (below).Higher oil prices are not translating into the same level of investment seen in Canada in the past, and the Canadian economy has underperformed the U.S. in general. Energy companies have been optimizing existing assets, but are reluctant to invest in new growth capital for a variety of reasons, including price, policy, and pipeline uncertainty.