FXStreet notes that risk appetite, rather than oil prices, remains the key driver for oil-related currencies, in the view of economists at HSBC who expect the loonie to debilitate materially in a 12-month horizon.
“On 15 July, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed to ease their crude production cut to 7.7 million barrels per day starting from August through December, from the existing level of 9.7mbpd. Oil prices were a little lower on 16 July, but we believe, weaker oil-related currencies, including the CAD, were likely echoing risk appetite rather than oil prices.”
“We believe there are sufficient medium-term challenges for the CAD that merit an independent bias to weakness in any short-term outlook. Activity measures (such as retail spending and dining at restaurants) show some improvements but remain far below pre-COVID-19 levels. The CAD faces the additional challenge of a highly indebted household sector. In addition, the risk of sustained economic scarring in the labour market remains. The outlook for business investment is also poor, with capex appetite at its lowest since the global financial crisis and soft employment metrics.”
“We think that the degree of strength in the CAD against the USD since March following the pick-up in risk appetite seems to be misplaced. We expect the CAD to weaken materially against the USD during 2H20 and into 2021.”
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