The recovery in oil prices as well as the Canadian dollar is setting happens for just about any “worst of both worlds” scenario, according to one Bay Street strategist.
Unlike some of his Bay Street cohorts, David Doyle at Macquarie Capital Markets admits they got it wrong round the Canadian dollar.
With the loonie up Ten percent previously 2 months combined with the S&P/TSX composite index outperforming, bearish requires Canada have proven unwise.
Related
- The oil price crash is completed – allow the recovery of Alberta’s hard-hit economy beginCould oil’s long, dark winter finally be over? Why there’s reason being pessimisticDavid Rosenberg thinks the Canadian dollar can rally further
-
-
-
Some within the drivers include rising global risk appetite, a roughly Half grow in oil prices, along with the general reduction in pessimism.
Doyle also noted that short covering across the loonie helps the currency rebound, as short contracts across the Canadian dollar have fallen from 65,000 to 16,000 C the minimum level since June 2015.
However, the strategist still sees downside for the loonie than the U.S. dollar, albeit inside a more gradual pace.
He predicts the Canadian dollar will hit an all-time low of 59 cents U.S. afterwards years, but that will only come within a global amount of risk aversion. For your end of 2016, Doyle sees the loonie at 69 cent U.S.
“Unprecedented divergence in leverage and housing investment cycles inside the U.S. and Canada should result in unprecedented monetary policy divergence,” the strategist told clients, noting this means the region between U.S. and Canadian government bond yields should still widen.
Despite the overall rise in market optimism for Canada, Doyle cautioned the mixture of oil prices within the US$40 to US$45 per barrel range, as well as the loonie above 75 cents U.S., could spell further damage to the domestic economy.
That’s because crude prices as of this level are unlikely to make a meaningful capital spending recovery in the energy sector, higher oil prices put additional pressure on already stretched household budgets, and also the stronger loonie makes Canadian exports less attractive.
