Yield premium makes loonie attractive

Return of growth in US and stability in oil prices top benefactor currency would be Canadian dollar.

Canadian economy though yet to recover fully from the global slump, would reap most of the benefits of its rising neighbor US.

US now stands more self-reliant in terms of oil, however refineries will continue to import heavy crude from Canada, rather than from the Middle East or crude from Mexico.

• Canadian economy looks attractive too with stable government with low political risks associated. Unemployment rate has fallen to 6.8% and Labour market this year is expected to show further improvement.
  
  
• Economic activities slowed somewhat since June last year over the fall in oil price however sharp fall in loonie has shielded some of the adverse effect. As per latest GDP is growing at 0.6% q/q and 2.6% y/y.

Last week's Bank of Canada (BOC) rate decision has firmed the yields across yield curve.

Yield difference is shown in Chart for 3 months.

• Canada's two year yield is trading close to 0.67%, compared to 0.51% in US, 0.47% in UK, -0.26% in Germany and 0.005% in Japan.

Loonie would remain boosted against counterparts, should the oil stabilizes.