The Canadian dollar hit its highest point in more than two years on Thursday as the U.K. announced it had approved a coronavirus vaccine for emergency use and oil prices were buoyed by an apparent deal among OPEC nations to extend their current production cuts past January.
The loonie at one point touched 77.61 cents US, its highest level since October 2018.
One catalyst for the loonie’s uptick was word that members of the Organization of Petroleum Exporting Countries and Russia are reportedly nearing a deal to extend production cuts of more than seven million barrels a day past January.
Some in the oil cartel have pushed for a three month extension to May to the cuts, but given the recent run up in oil prices, the cartel has settled on a compromise of maintaining the cuts into February.
“This is roughly what was expected to come from these talks which will be why oil prices continue to trade around the highs,” said Craig Erlam, an analyst with foreign exchange company OANDA.
A barrel of West Texas Intermediate oil was trading above $45 US on Thursday, a level it has not reached and stayed above since early March when the pandemic walloped demand for energy around the world.
Currencies benefit from hope world economy will recover
The loonie is riding the wave of higher oil prices, but is also benefiting from a general weakness in the U.S. dollar.
The Australian dollar, the euro and the Korean won also hit two-year highs against the U.S. dollar on Thursday, as the flight for the perceived safety of America’s currency seems to be coming to an end.
Britain announced it has approved Pfizer’s COVID-19 vaccine for emergency use, which has spurred expectations that other nations may soon follow suit. That, in turn, is stimulating hopes that the world’s economy may soon get back to some semblance of normal.
“The big talk seems to be all about the U.K. getting ready to do the vaccine next week — faster than a lot of people expected and it’s having an effect on pretty much everything,” said Michael Currie, vice-president and investment adviser at TD Wealth.
Counterintuitively, that’s bad news for the U.S. dollar, which has seen its value increase by about 13 per cent during the pandemic because it is a perceived store of value. If things are indeed getting better, there’s less need to keep cash stashed in something safe like a U.S. dollar.
Loonie could be headed higher: analyst
Shaun Osborne, chief foreign exchange strategist with Bank of Nova Scotia says the loonie has appreciated by about 10 cents since bottoming out in April, and he thinks a case can be made that the loonie could be headed higher still in the medium term.
“The U.S. economy is likely to perform on par with the rest of the world [and] may underperform Canada,” he said in an interview.
“A stronger global economy and higher demand for commodities … that is something I would expect to be positive for the Canadian dollar [but] I think we need to get through the next two or three months just to see just how much this move can extend,” Osborne said.