Canadian Dollar Weakening Ties to Oil Prices Spur Bets Against It
The Canadian dollar's historic tie to oil prices is weakening, causing traders to bet against it. In recent times, when oil prices surge, the loonie would strengthen, but this dynamic has shifted.
This change can be attributed to the declining competitiveness of Canada's oil extraction and investment in the oil sands. As a result, foreign investment is dwindling, leading to reduced demand for Canadian dollars.
CIBC Capital Markets' Noah Buffam notes that 'the loonie sensitivity to oil prices has been declining as investment in the oil sands has been falling as a share of the economy.'
Traders are now souring on the loonie, with hedge funds turning the most bearish on the currency this year. The Bank of Canada is expected to keep interest rates unchanged next week due to ongoing uncertainty posed by US tariff policy and the war in Iran.