The recent rise in oil prices has failed to take the Canadian dollar along for the ride, with the loonie languishing below US$0.78 at a time when oil is hitting levels not seen since January.

The loonie has somewhat decoupled from crude, bucking its reputation as a petrocurrency and tracking closer to interest rate increase expectations, which have taken a hit from the recent string of soft economic data, including an outright contraction in August GDP.

“[The GDP] figures keep us firmly on track to see the type of slowing we—along with the Bank of Canada—are expecting in the third quarter, where a near-two-per-cent pace will be less than half of what we saw in the second quarter,” CIBC Capital Markets Senior Economist Nick Exarhos wrote in a research note. “That supports the BoC’s current ‘wait-and-see’ stance on policy after its two earlier hikes, and we’re sticking with our call that their next move will come in the spring of next year.”

The loonie traded as low as 77.45 U.S. cents at 9:11 a.m. ET on Wednesday but rebounded in the afternoon, trading as high as 77.72 at the market close.  

Market participants are largely in agreement with Exarhos’ timeline, with the implied probability of a further Bank of Canada rate increase sitting at 66 per cent for the March meeting.

Meanwhile, CIBC Deputy Chief Economist Benjamin Tal argued just last week the loonie was worth shorting at these levels due not only to rates, but also uncertainties surrounding NAFTA negotiations.  

While the link between oil and the Canadian dollar has been feeble over the course of the last few months, Scotiabank FX Strategist Eric Theoret said in a research note that the phenomena may not last.  

“Oil prices have yet to provide a meaningful offset, despite fresh highs in WTI threatening the January 2017 multi-year high,” he wrote. “CAD’s correlation to oil (WTI) appears to be firming from remarkably weak levels.”