Canadian dollar bears, gratified by the currency’s slide after a dovish Bank of Canada statement, face hurdles to further weakness in the form of rising domestic oil prices and a robust technical barrier, foreign-exchange strategists say.
The loonie ended Wednesday close to the weakest since June 2017 as traders marked down the odds of BOC rate hikes throughout 2019. The OIS-implied probability of a January rate increase slid below 30 per cent from 70 per cent two weeks ago. Meanwhile, the price of Canadian oil, whose sharp drop since early October informed the BOC’s stance, has been edging higher.
“I expect improving conditions for oil to point USD/CAD lower from here,” said Greg Anderson, global head of FX strategy at BMO.
Western Canada Select crude, the benchmark for Canadian oilsands production, approached $13 (U.S.) a barrel in November from a year-to-date high of nearly $58 in May. It has rebounded to around $30 following production cuts in Alberta.