Mark Carney is the latest to reject the idea that the loonie is solely a "petro-dollar," in comments that may help limit the currency's climb should he start raising interest rates.
The Bank of Canada Governor said at a press conference in Ottawa Wednesday that it is "simplistic" to trade the Canadian dollar as if it always moves in tandem with oil or any other commodity, and doing so "over the medium term, is going to be a recipe for losing money."
The currency's ascent since 2002 has been accompanied by rising commodity prices and has broadly tracked global oil prices. Nevertheless, speaking to reporters after he delivered his latest forecast for the Canadian economy, Mr. Carney said the loonie's persistent strength in recent years is more complicated, reflecting an economy that is about much more than oil.
"It is far too simplistic to talk about the Canadian dollar as a commodity currency, let alone a currency that moves consistent with one commodity," he said. "This is a much more diverse, complex economy than that, and this is one manifestation of it.
"We're not going to give advice on how people should trade in the markets, but it's important to point out the underlying dynamics."
On one level, Mr. Carney was just stating reality. Several factors support the loonie, including the fact that investors are drawn to Canada's stocks, bonds and the currency as perceived "safe haven" securities in a world of turmoil.
But Mr. Carney also has a stake in the currency not being so closely hinged to lofty oil prices, as he spends the coming weeks considering whether to follow through on hints this week that he may raise interest rates sooner than markets were expecting.
Mr. Carney has not specified when he might raise rates, saying tightening "may become appropriate" depending on how economic events play out.
Already, though, just hinting at future rate hikes has pushed the loonie to its highest level in a month, suggesting it will be difficult to tighten borrowing costs without exacerbating the problems facing exporters of manufactured goods.
Still, Camilla Sutton, chief currency strategist at Scotia Capital in Toronto, said she doesn't necessarily believe Mr. Carney was "jawboning," a tactic that policy makers sometimes use to cool speculators' enthusiasm for the currency.
Obviously, the loonie is largely "weighted toward" the price of oil, given Canada is one of the world's major producers, she said. But at the same time, foreign central banks and private investors alike are looking to Canada as an island of relatively strong economic and fiscal fundamentals, compared with troubled regions like the euro zone.
That growing search for a shrinking pool of triple-A rated securities and "haven" currencies is increasingly playing a part in the boosting the currency, she said.
Mr. Carney's new forecast boosted the outlook for Canada's economy in 2012, but warned that the country's status as an oil exporter is no longer translating into a net gain for the economy.
The usual patterns have been broken because Canadian crude prices have not matched the runup in international oil, even though consumers and businesses are paying product costs that tend to be priced off the global market. The net effect of this, he said, will chip 0.1 percentage point off of economic growth this year.
But the Canadian crude disadvantage should be a short-term phenomenon. In fact, Canadian crude prices have recovered dramatically since mid-March, as pipeline companies move forward with plans to link the glutted Cushing, Okla., market with the U.S. Gulf Coast.
"What the Bank of Canada has been highlighting as an issue for the economy will actually be very short-lived," said Charles St-Arnaud, an economist at Nomura Securities Inc. in New York.
Either way, while Mr. Carney downplayed the "petro-dollar" notion, Mr. St-Arnaud said it is a mindset among investors that will be hard to shake. His own analysis estimates that a 10-per-cent increase in West Texas intermediate prices (to which the oil that Canadian energy companies sell abroad is linked) typically will boost the loonie by 1.6 per cent.
"Most traders would have on their screen a graph of the Canadian dollar and a graph of WTI, and they will trade according to that," he said. "There is more than oil influencing the dollar, but it is the easiest thing to look at."