Oil prices
are climbing higher due to rising tensions in the
Middle East
and that is lifting the
Canadian dollar
against most of its G10 counterparts, highlighting its on-again, off-again role as a “petrocurrency.”
The price of the world’s two benchmark crudes jumped nearly 10 per cent before retracing some of those gains after Israel launched attacks on military and nuclear sites in Iran early Friday morning.
Brent, the overseas benchmark, and
West Texas Intermediate
, the North American benchmark, were both trading well above US$70 a barrel. That represents a significant increase from Thursday, when they were trading in the US$68 to US$69 per barrel range and a big jump from early May, when prices fell to around US$55 per barrel.
There are fears that
Iran
could strangle oil shipments since it controls the Strait of Hormuz, through which 26 per cent of the world’s crude exports pass.
The Canadian dollar on Friday morning was up against haven currencies, including the Swiss franc and Japanese yen, as well as the euro and British pound.
“The Canadian dollar is outperforming most of its advanced-economy brethren as rising crude prices drive buying interest,” Karl Schamotta, chief market strategist at Corpay Currency Research, said in a note. “Correlations between the loonie and oil prices have tended to peak when the West Texas Intermediate benchmark has entered the US$75-US$100 per barrel range.”
Crude at US$75 a barrel is above the breakeven production point for Canadian oil producers. Schamotta said that means investment in Canadian energy could rise, possibly bringing the “loonie’s ‘petrocurrency’ status back to life.”
Analysts at
Bank of Nova Scotia
also see upside for the Canadian dollar due to the price of oil.
“The (Canadian dollar)/crude correlation is historically positive and oil price gains present a reliable source of support for the Canadian dollar,” Shaun Osborne, chief FX strategist, and Eric Theoret, FX strategist, said in a note, adding this week has been good for the Canadian dollar.
On top of the increase in crude prices, “fundamentals have improved significantly,” including the possible narrowing of the gap between
Bank of Canada
and
United States Federal Reserve
monetary policy.
The Canadian dollar on Thursday rallied against the greenback after U.S. inflation came in more tepid than expected, causing markets to increase bets that the Fed will start cutting
interest rates
sooner than expected.
On Friday morning, the loonie was down 0.12 per cent against the greenback as investors chased the
U.S. dollar
as a haven play, though some analysts said the currency should have increased more after Israel’s attacks.
“It’s another testament to the loss in value of the dollar’s safe haven status,” Francesco Pesole, FX strategist at ING Bank NV, said to Bloomberg.
The U.S. dollar index, which measures the greenback against a basket of other currencies, including the Canadian dollar, is down 10 per cent since mid-January.
• Email: gmvsuhanic@postmedia.com
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Rising oil prices on Israel attack on Iran could revive Canadian dollar's 'petrocurrency status,' analysts say
2025-06-13 15:37:26
