Posthaste: This 'important driver' of the Canadian dollar is broken, economist says

financialpost.com:

Remember the days when the price of oil would go up and the loonie would follow suit?

The long-established link between the Canadian dollar and the price of oil — “an important driver” of the currency — is ruptured, a new analysis suggests and it could have to do with the way oil majors at home are spending their cash.

“The good old way of seeing the Canadian dollar is over. We need to put that to rest,” said Charles St-Arnaud, chief economist at credit union Alberta Central.

Over the last year, higher oil prices have failed to translate into an appreciating Canadian dollar, St-Arnaud said in a recent note, putting an exclamation point on the notion that the loonie appears to be a “petro-currency” no more.

The Calgary-based economist said there was a clear break in the relationship between currency and commodity starting in 2016 that has “become acute over the past year.”

Recall that in 2007, just prior to the Great Recession, U.S. benchmark West Texas Intermediate (WTI) rose to about US$140 per barrel, pulling the Canadian dollar above parity with the greenback. Leap ahead to 2022, and a WTI rise above US$100 failed to have a similar effect — in fact, the loonie moved in the opposite direction.

St-Arnaud identified what he believes are two important reasons for this rupture, which are having a compound effect on other forces driving down the loonie.

The Calgary-based economist estimated that over the past year 10 per cent of revenue ($20 billion) has gone to investors in the form of buybacks and dividends, compared with three per cent ($3.7 billion) in 2014. Alberta Central based its estimates on data from major Alberta oil producers including Suncor Energy Inc., Cenovus Energy Inc., Canadian Natural Resources Ltd.,