10/13/2016 07:04 EDT | Updated 10/14/2016 11:16 EDT

The Loonie Doesn't Depend On Oil Anymore

They've gone their separate ways.

There was a time when you could predict the rise and fall of the Canadian dollar based on oil prices.

But the two have gone their separate ways, says a BMO chart released Thursday.

West Texas Intermediate (WTI) oil prices have jumped by almost 17 per cent since mid-September to reach above $50 per barrel, economist Robert Kavcic noted.

But the Canadian dollar's value has dropped in the same period, going from over US$0.767 in September to $0.757 this month, representing a break with oil that's "untrue to form," Kavcic said.

The economist said the trend is likely to persist as the U.S. Federal Reserve looks at hiking the interest rate, possibly before the end of the year, Reuters reported.

Observers saw this coming

The loonie was long seen as a "petro-currency" as oil began to form a significant chunk of Canada's economy.

Signs of a decoupling started to emerge in August, when the link between the two appeared weaker than it had in 18 months, according to an analysis by Bloomberg Markets.

The Canadian dollar is now being influenced by other factors, such as a government budget deficit, a trade deficit and a negative current account balance, Canaccord Genuity said in a note last month.

(Photo: Mark Blinch/Reuters)

Canada's trade deficit, which measures how much more a country's imports are worth than its exports, sat at about $1.9 billion in August, defying expectations that it would hit $2.6 billion.

This is happening because Canadian export activity is picking up — but it's happening slowly, said TD Bank economist Dina Ignjatovic.

Meanwhile, Canada's current account, which measures how much more it's spending on foreign trade than it's bringing in, showed a deficit of about $19.9 billion in the second quarter, for an annualized amount of $79.4 billion — more than it's been in the past five years, according to Statistics Canada.

It's not a trend that bodes well for the loonie's value against the U.S. greenback.

This could be a good thing

A dropping Canadian dollar could be a positive development, as it could foster more export activity.

The Bank of Canada previously said that exports could help Canada's economy, even as energy prices have fallen over the past two years.

But there's competition out there: currencies in Mexico, Brazil and Argentina have fallen even further against the U.S. dollar, reducing Canada's competitiveness, Macquarie Research noted last month.

Macquarie projected that the loonie could fall to the low-70 cents range next year.

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