HSBC analysts are questioning why the Canadian dollar (CAD) has not strengthened significantly despite higher oil prices, highlighting structural constraints on Canada’s export capacity to the United States. They note that confined LNG and crude oil infrastructure towards Europe and Asia keeps Canadian energy exports largely U.S.-focused and discounted. As a result, HSBC argues that in current conditions, the USD/CAD pair remains more sensitive to broad dollar movements than to oil dynamics.
Oil sensitivity is structurally confined for CAD
“Canada should theoretically benefit from a higher oil price through improved terms of trade and energy revenues. In practice, Canada’s ability to monetize global price spikes is limited by its limited ability to export liquefied natural gas (LNG) and crude oil to Europe and Asia.”
“As a result, much of Canada’s energy exports remain U.S.-centric and often trade at a discount, reflecting pipeline bottlenecks and limited exit from the West Coast.”
“Moreover, the biggest spikes in oil prices are often supply shocks that coincide with risk aversion and dollar strength, which could limit CAD growth.”
“In today’s context, even if a prolonged blockage of the Strait of Hormuz causes oil prices to surge, CAD may not gain much.”
(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)
