CAD, NOK and oil: Beware The Pending Correlation Breakdown - Credit Agricole

The recent bounce in oil prices has helped CAD and NOK regain some ground. We doubt that the bout of appreciation will grow into an FX uptrend, however.

The oil outlook is still clouded by lingering oversupply concerns and global demand fears. Our econometric analysis of ‘structural breaks’ further suggests that the historically low oil prices should dampen the positive correlation between oil, and CAD and NOK from here.

CAD and NOK should thus be less able to benefit from any recovery in oil prices than in the past. The dovish outlook for the BoC and Norges Bank, and fragile risk sentiment will remain dominant drags on CAD and NOK, even if we expect the former to outperform the latter. The receding importance of oil as driver of CAD.

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