Oil Rose Twelve Times as Fast as the Currency
West Texas Intermediate settled at $101.41 on Friday, up 3.5% on the day and 10.4% on the week, after Brent closed at $109.86 following its first touch of $110 since May. The Canadian dollar traded near 70.70 US cents at midday, up about 0.3% on the day and 0.8% on the week. Oil moved about twelve times as far as the currency, and the Geopolitical desk argued this morning that the market was pricing duration rather than a spike. Friday priced it, and the loonie did not follow.
WTI round-tripped from $102.43 on September 16 to an $88.28 low on October 7 and back to $101.41, while USD/CAD climbed in one direction from 1.3947 to a high of 1.4271 on October 9 and has only partly reversed. The oil price completed a loop and the currency did not.
The shaded band starts at the October 7 settle of $88.28. USD/CAD is plotted on its own scale, so a rising line is a weaker Canadian dollar.
The same $101 oil now arrives with a different set of Canadian prices. The Government of Canada 10-year yield closed Thursday at 3.83%, nine basis points below its 3.92% of September 16, and the dollar is 1.5% weaker than on that date. A month ago this oil price came with a stronger currency and a higher yield.
The Rate Channel Moved on Jobs Day
The sharpest recent move in Canadian yields came on October 9, when the Labour Force Survey showed 68,000 jobs lost. The 10-year fell 7 basis points to 3.86% and the 5-year fell 6 basis points to 3.54% on a day when WTI rose 0.4%. Neither yield has recovered since, even as crude gained 10.4%.
The Labour Force Survey on October 9 showed 68,000 jobs lost and unemployment at 6.5%. The dashed line marks the September 16 10-year level of 3.92%; October 16 yields publish after the close.
Governor Macklem said on Friday that the Bank of Canada has been looking through the rise in energy prices, but that the longer elevated prices last, the harder that gets. The bond market is pricing that tension as damage to growth first. Canada holds its policy rate at 2.25% against a Fed range of 3.75% to 4.00%, and the Government of Canada 10-year yield sat 126 basis points below the U.S. 10-year at 5.09% on Thursday.
Three Morning Calms Ended at Once
This morning three desks described stability. WTI was below $100, the VIX had closed at 16.46 inside a 22-session range of 14.21 to 17.71, and the TSX had spent 22 sessions between closes of 35,041.90 and 36,335.60. By late Friday WTI was $101.41, the VIX had risen above 20 and was on pace for its highest close since June 10, and the S&P 500 and Nasdaq were down about 1.1% and 2.1% in an AI-led sell-off. The TSX noon print of 36,338.36 sat 2.76 points above the top of its band, led by materials and energy.
Canadian equities are pricing the barrels and the bullion. The dollar and the bond are pricing the economy. Monday tests which side is right when Statistics Canada publishes September CPI nine days before the October 28 decision. A hot print with oil above $100 revives October hike odds, which stood near 25% this morning, and the first place to look is the 5-year at 3.53% and the three-month bill at 2.40%. That bill is the input to the first quarter 2027 prescribed rate, which moves from 3% to 4% only if the October average clears 3.00%. If USD/CAD does not fall on a hot print, the rate channel has overridden the oil channel.