In a brief note to clients, the bank's chief economist, Doug Porter, observed that after losing nine per cent of its value in dropping from 86 cents to 78 in January while oil was in freefall, the loonie essentially treaded water until the middle of March before mounting a comeback.
On Tuesday, the loonie was changing hands at 83.11 cents US, up almost half a cent on the day. Six weeks ago, the loonie was at 78 cents, and that modest rally has been enough to make the loonie the best currency investment in the world since the start of February.
"It's still been a tough year just because it was a brutal January," Porter said. "But the loonie has had a wonderful spring after a tough winter."
Evened out over the whole quarter, the loonie is up almost four per cent over the past three months. That's normally nothing to write home about, but it's almost twice as good as the second-place New Zealand dollar. It's also much better than the British pound, the Swiss franc, the euro and the Japanese yen, all of which are in negative territory over that time span.
The reason for the loonie's strength is a complex mix that includes a pullback in the U.S. dollar that had been gaining strongly, and a resetting of expectations as currency markets think it's now less likely for the Bank of Canada to cut rates again.
But the real catalyst is oil.
"It's come from the low 40s to over $60 today," Porter noted. "That's still a long way from where it was last summer," but a major reason for the loonie's turnaround, he says.
So does BMO expect the loonie's strength to continue?
"When we take all these things into consideration, we think the loonie remains defensive," Porter says.
"We think it drops back below 80 by the end of the this year and then works its way back up in 2016."