The Canadian dollar enjoys the recent market recovery and the bounce back in oil prices. Can this last? The team at CIBC explains the potential dynamic:

Here is their view, courtesy of eFXnews:

Looking beneath the impact of lower energy prices, there’s evidence that the weaker C$ is finally starting to improve Canada’s trade position.

The deficit ex-energy, while still historically wide, was the narrowest since 2011 at the end of 2015. Ex-energy exports have now run above the pace of imports for two straight years. While that may seem like a small step, given the large deficit remaining, it has meaningful implications for the currency.

The improvement we are seeing is an indication that the loonie doesn’t have to fall further to see exports support the economy or to get the deficit moving back toward balance.

If recent US$ weakness has been exaggerated as we expect, USDCAD could move back into the low 1.40’s, before moving back toward the mid 1.30’s.


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