The loonie has rebounded 2.7% against the greenback so far in April, leading some to predict that another up-cycle for commodities, Canadian equities and the C$ has begun. But, the loonie has climbed with oil prices in 8 of the last 10 Aprils, only to retrace again in the month thereafter.

The larger perspective, as shown in the below chart since 1994, from my partner Cory Venable, is that late in economic cycles when growth and revenues disappoint, the US dollar typically rallies, while oil and commodity-centric currencies weaken.

Not only is the global benchmark currency a relatively deep and liquid ‘safe haven’ in times of global financial strain, but the bulk of global debt (some $237 trillion today) is owed in US dollars.As US spending and imports fall, so does the inflow of US dollars to foreign exporters who need greenbacks to make their payments.This naturally prods them to buy more US dollars, and traders pile on for the ride.These factors compound rising U$ costs and shrinking free cash flow for foreign borrowers and exporters.

As noted below, the U$ does not typically top out against the C$ until the equity market ‘risk-off’ cycle has bottomed.

Despite 2018 seeing the most negative first quarter for stock markets since 1929, declines have been modest thus far.And unlike the last two, this contraction cycle has the added distinction for Canada of boasting some of the most over-valued realty and indebted households in the world, going in.

We suspect that the loonie is unlikely to have fathomed a durable cycle bottom just yet.