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Loonie’s behaviour proving harder to ignore

Investors are tiring of the US dollar, disillusioned by the bursting of the Trump Trade and unwilling to hold too much store by this week’s hawkish tone of Federal Reserve chair Janet Yellen. But the Canadian, Australian and New Zealand dollars, respectively nicknamed the “loonie”, “the Aussie” and the “kiwi”, are proving harder to ignore.

In the past four weeks, the loonie has gained 4.8 per cent against the US dollar, the Aussie 3 per cent and the kiwi about 5 per cent. No doubt, the US dollar’s weakness is contributing to the advances of these and other currencies. But their own economies are far from idle.

Data are revealing upside surprises in their rates of growth. The Aussie jolted upwards on the back of another stellar month of jobs’ growth. As their economies ramp up, the cautious “do-nothing” positions of their central bank policymakers look harder to maintain.

Canada was the first to move. Bank of Canada policymakers this week signalled the end of easy monetary policy and a switch to normalising rates. That powered the loonie through C$1.32 to the dollar for the first time in nearly four months, and this against the backdrop of a 3.5 per cent drop in oil, its big export product.

As Neil Mellor at BNY Mellon points out, there has been a 90 per cent correlation in Brent crude and the loonie since 2000, making this week’s strength “all the more impressive”.

Canadian economists will be mindful of how the 2014 oil price shock hit the Canadian economy. Two things: first, for all the latest oil price falls, the price of a barrel of oil has stayed in the $44-$54 range for the past year. Second, Canada is now less oil-dependent, its economy better balanced by the rise in service industries and jobs growth in tech.

The Antipodeans have different issues. Australia’s economy is linked to China. New Zealand is dependent on dairy. Worries about the housing market and personal indebtedness mean “they will have some difficulty in raising rates this year”, says Peter Kinsella of Commonwealth Bank of Australia.

Don’t expect European central banks to come off the monetary policy fence any time soon. But at least Canada represents a start.

roger.blitz@ft.com