Similar to Australian dollar, Canadian dollar this year should continue to benefit from broad-based USD weakness, global recovery, and rebound in commodity, in particular crude oil, prices. However, with the US as its largest trading partner, BOC should track the Fed’s monetary policy closely, and avoid excessive appreciation of CAD against USD. This could limit loonie’s gain when compared with other commodity currencies.
While Australian dollar are positively correlated iron ore price, the movement of Canadian dollar is closely linked to that of crude oil price. The country is the 4th largest producer and third largest exporter of oil in the world, with 98% of its oil exports going to the US. Indeed, weakness of crude oil last year had also triggered selloff in CAD. The theme of global economic recovery and improved risk appetite this year should be positive for crude oil. However, OPEC+ compliance may add uncertainty. A survey by Petro-Logistics shows that the compliance level of the alliance plunged to 75% in December, the lowest since May 2020. Saudi Arabia, the most committed member to output cut, saw its compliance drop 10 ppts to 92%. Russia, world’s third largest oil producer after the US and Saudi, saw compliance down 8 ppts to 64%. Other surveys, such as S&P Platts and Reuters, also estimated lower compliance in December, although the level remained close to 100%.