Traders looking to tap into rising oil prices would be wise to bet on the Canadian dollar, which is under-appreciated compared with its commodity-currency counterparts, Goldman Sachs said on Wednesday.
The price of Brent crude oil has bounced back from as low as $48.38 early this month to about $54 on Wednesday. Goldman reckons that the oil benchmark will appreciate further in the back half of this year to $57.
New York-based Goldman expects the main developed-market oily currencies – including the Australian, New Zealand and Canadian dollars as well as the Norwegian krone – to “continue to appreciate over the coming 12 months”, particularly against the euro and yen.
But Goldman is particularly bullish on the Canadian dollar against the euro, arguing that the “market is too pessimistic” on the North American country, because investors have “priced in the implications of higher oil prices for the currency less than in other markets”.
This comes as the market “appears to have moved too fast to price in expectations of a hawkish policy shift from the [European Central Bank’s June meeting], given the still-weak euro area inflation outlook”.
If Goldman’s expectation comes to fruition, it would represent a turnround for the loonie, which has slid almost 6 per cent this year against the common currency.