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Investing.com - The Canadian dollar has been among the top performers in the G10 currency group since the energy shock began, according to Goldman Sachs. The firm attributes this strength to Canada’s high sensitivity to oil price movements and the currency’s close correlation with the U.S. dollar.
Goldman Sachs expects the Canadian dollar to continue its relative outperformance in the near term as a prolonged energy shock supports the currency. Oil price shocks serve as a key driver for the Canadian dollar given Canada’s role as a primary oil exporter to the United States and a growing exporter to China.
The firm notes that if global growth concerns intensify, even commodity exporters like the Canadian dollar tend to underperform safe-haven currencies regardless of terms-of-trade impacts. In such a scenario, the Canadian dollar should remain more resilient than other cyclical currencies due to its higher correlation with the broader U.S. dollar.
The Bank of Canada is unlikely to provide tactical support through hawkish policy, as its recent communications were dovish compared to other central banks. The central bank’s statement highlighted weak domestic growth and indicated the Governing Council would "look through" the near-term increase in headline inflation.
Goldman Sachs views the lack of hawkish policy as removing a potential tailwind rather than a significant headwind for the Canadian dollar against the U.S. dollar. The firm identifies downside risks primarily from the currency’s U.S. dollar correlation in the event of sustained risk sentiment recovery and commodity market relaxation.
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