We’ve had evidence that a weak C$ finally started lifting manufacturing shipments, export volumes and GDP generally towards the end of last year. However, the strong rebound in the C$ recently threatens to stem that tide, with the loonie well above its November-January average.
While oil prices have moved up, dragging the C$ with it, they still aren’t anywhere close to the level needed to bring back capital spending. Although Governor Poloz did little to talk down the loonie this week, he may well need to in the future if the upturn in manufacturing slows or reverses.
As such we still expect the C$ to be weaker on a three-month horizon, although USDCAD is unlikely to get back into the 1.40’s as we previously expected.
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