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Canadian dollar outpaced by its commodity currency rivals

By Andrew Knoll

08:11, 11 March 2022

A picture of a Canadian one-dollar coin showing an image of the native loon bird
The Canadian one-dollar coin is often called “the loonie” after the native bird, the loon, pictured on the coin – Photo: Shutterstock

The Australia and New Zealand dollars – known as Aussies and kiwis, respectively – have demonstrated a strong performance amid heightened market volatility stemming significantly from Russia’s invasion of Ukraine, however their Canadian cousin – known as the loonie – which is often compared and even paired with these currencies, has only begun to rally in a similar fashion.

In Thursday trading, the Australian (AUD) and New Zealand dollars (NZD) continued to out-pace the Canadian dollar (CAD), albeit with the gap beginning to close after some rebound for the loonie.

Kiran Kowshik, FX Strategy, macro-strategist Homin Lee and cross-asset strategist Sophie Chardon of Lombard Odier Wealth Management co-authored a note addressing forex implications of the conflict in Ukraine.

In their note, they grouped the Aussie, kiwi and loonie together among currencies they felt were bankable, despite the current tumult in global markets, particularly in commodities like oil, gas, lithium and wheat.

Their top currencies remained the US dollar (USD), Swiss franc (CHF) and Japanese yen (JPY), in that order, but they also extolled the potential of the loonie, Aussie and kiwi.

“Assuming broader risk sentiment stabilises, commodity currencies geopolitically distant from the conflict may outperform,” wrote the trio of Lombard Odier analysts in a report issued on Thursday.

They added: “This includes the Canadian dollar  and Australian dollar in G10, and the Chilean peso (CLP), Peruvian sol (PEN), Brazilian real (BRL), Indonesian rupiah (IDR) and Malaysian ringgit (MYR) in EM [emerging markets].”

So why has the Loonie’s ascent trailed that of its corollaries in the Southern Hemisphere? delves into their differing paths with a glimpse at where each currency stands in this turbulent moment.

Commodities and the Canadian dollar

The loonie, Aussie and kiwi all rank among the 10 highest-volume currencies traded globally. As indicated above, they are all are among currencies seen as desirable, thanks to the historical stability of their value and issuing governments, as well as that of their natural resources and national industries.

Like its neighbour to the south, the US, as well as most other developed economies, Canada has been reeling from inflation. It began combative measures such as its first interest rate hike in three years, which came last week.

While commodity-linked currencies have curried favour from investors, in fact oil, natural gas and the overall commodities market lost ground as the loonie gained value on Thursday.

Furthermore, the intertwined, if not inextricable, positioning of the loonie and the energy markets – oil in particular – has been uncharacteristically disrupted of late.

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Severed ties

An increased value of the loonie could soften the blow of inflation by strengthening Canada’s position in international trade. But the weakened link between oil and Canada’s currency could remove that tool from Ottawa’s kit, and may also hold the loonie back a bit.

When crude oil last topped $100 per barrel, eight years ago, the loonie was performing much stronger (CAD1.09 : USD1) than today (CAD1.28 : USD1), even after a 0.3% rise on Thursday followed Wednesday’s gains.

Correlation between the loonie and crude oil prices has dropped precipitously, with the three-month rolling correlation falling from 0.9 to 0.3, dangling just above a flat zero that would indicate a lack of correlation, according to Haresh Menghani, financial markets analyst and news editor at FXStreet.


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1.10 Price
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0.66 Price
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Long position overnight fee -0.0071%
Short position overnight fee -0.0011%
Overnight fee time 22:00 (UTC)
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147.21 Price
-0.980% 1D Chg, %
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That development has bucked the trend of a historically strong and steady relationship between the two values.

Aussie sizzles once more

After an initial pullback, the Aussie continued to gain ground against the US dollar and other currencies in Thursday trading. That was despite a number of potential cooling circumstances.

The Relative Strength Index had the Aussie entering overbought territory for the first time in nine months. Like many nations, inflationary pressures and looming hikes in interest rates clouded an economy made even more nebulous by the conflict in Ukraine.

Phillip Lowe, governor of the Reserve Bank of Australia (RBA), said this week that the country’s record-low interest rates were at risk of a hike later in the year. Some experts are projecting its timing for the third quarter, but Lowe said Australia’s relatively limited inflation placed the RBA in a position of prudence and patience.

“We have scope to wait and assess incoming information to see how some of the uncertainties are resolved,” Lowe said. “We can be patient in a way that countries with substantially higher rates of inflation cannot.” 

Australian bond yields have continued to trend upward, and are also strong in natural resources, many of which contribute to their strong position in the commodities market.

While that’s true of Canada as well, key differences exist in terms of tethering, with Canada traditionally tied tightly to oil and its neighbouring chief trade partner’s economy, and Australia linked more substantially to the precious metal market, as well as associated economies in Asia and the Pacific Rim.

While no Southern Hemisphere nation or North American state has the sort of direct exposures to the conflict that European countries do, the political positioning and robust, inflation-resistant economy of contemporary Australia both serve to further strengthen its position.

Kiwi stays sweet – if a bit fuzzy

The kiwi continued its upward climb throughout the week, despite a firmer US dollar and softer commodity prices. Economic stability, forex trading from nations like Japan, vibrant pre-pandemic tourism and robust imports – including a leading dairy industry – have all influenced the historic resistance of the kiwi.

This has captured the attention of risk-averse investors, as have similar factors in other nations with relatively stable currencies.

Presently, unlike its regional cohort, Australia, New Zealand has been on the cutting edge of inflation-fighting measures, having raised interest rates for three consecutive Reserve Bank of New Zealand (NBNZ) sessions and setting in motion quantitative tightening set to begin in July.

This is in response, principally, to a three-decade-high inflation rate and an airtight labour market. Growth remains solid, but RBNZ projections for the year ahead were recently adjusted downward, with individual sectors like housing also appearing to be on the downswing.

Nevertheless, New Zealand shows many of the resilient economic qualities investors have sought in the Aussie, the loonie and other strong-performing currencies. Its top banking official expressed confidence in persistence through disruptions and an imminent return to normalcy.

“The broad story in our projections is an incredibly positive one relative to 18 months ago,” RBNZ governor Adrian Orr told reporters. “I feel so much more confident where we are today.”

Markets in this article

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1.27098 USD
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0.61967 USD
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1.35497 USD
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0.87689 USD
-0.00335 -0.380%

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