Canadian dollar reliant on US economy
Published on 15.02.2019 20:05

Since the beginning of the year, the Canadian dollar has performed relatively weel against its US counterpart on the back of higher oil prices which have risen by more than 20 percent from their recent lows and as long as the oil rally continues to happen, there may be more gains in store.

Being one of the world’s major oil producers, the Canadian economy realis heavily on the price of oil and in turn higher oil prices usually means ha stronger looney.

Probably the 2nd most important factor for the Canadian economy is the US and how its economy performs and with the latest round of economic data out of the US disappointing the market, this may be bad news for the former.

Any slowdown in the US, which has caused some analysts to predict that the Fed is done with their rate hiking cycle is bound to affect Canada and also cast doubt on whether the Central Bank in Canada can raise rates.

Some say with the slowdown in the US and the potetial for rates to remain on hold, the same will hsappen with Canada which will put pressure on the `Canadian dollar.

"We think the BoC will remain on hold in 2019, as inflation falls below target and growth remains low albeit gradually rising. We expect them to hike again in 2020Q1 after seeing solid GDP growth in 2019Q4 and thinking that the economy has recovered from the fall in oil prices, and after seeing that the 12-month change in core prices is finally returning to their target," says Laura Desplans, an economist at UBS.

"The US economy is slowing, and slower US growth will weigh on the Canadian economy. We attribute most of the deceleration in the US to the trade war with China. We expect the tariff effects to wane and, as US growth reaccelerates in the second half of 2019, supporting the Canadian economy," she added.


Andrew Masters

Analyst

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