Crude prices may be set to climb higher. With the International Energy Agency predicting global oil demand will exceed pre-pandemic levels by the end of next year, and US oil drilling activity way off pre-pandemic highs, energy prices could remain high just as the US driving season heats up. Canadian home sales and listings fell for a second straight month, but it’s important to remember that sales were up 103.6% year-over-year in May. Low inventory and the easing of the economy are likely to keep prices high. Meanwhile, the loonie ceded the top-performing currency spot to the South African rand as the greenback found solid footing around 1.20. Still, there are several factors that suggest the USD will struggle to extend these gains short to medium term.

Scotiabank analysts and economists weigh in on what the pandemic means for equities, housing, and currencies. 


  • IEA hikes global oil demand forecasts. In its monthly report released last week, the International Energy Agency predicted that global oil demand will exceed pre-pandemic levels by the end of 2022. The agency urged OPEC+ to ‘’open the taps’’ to ensure sufficient supply, because world consumption could reach 100 million BOE/day by the end of 2022. The IEA indicated that “meeting the expected demand growth is unlikely to be a problem,” banking on Iran sanctions being lifted and US production resuming, among other things.
  • Despite surging WTI prices, US drilling activity and production have barely recovered. Drilling activity remains 61% below its pre-pandemic highs while production struggles to exceed 11 million barrels per day (it peaked at over 13 million b/d). If US oil producers’ appetites to drill are waning due to mounting investor/environmentalist pressure for decarbonization, energy price strength could persist; WTI prices traded at a 20-month high last week. As US economic activity picks up, data from the US Transportation Department underscores soaring demand for gasoline. Miles traveled on US interstate highways bounced 4% above pre-pandemic levels for the week ending June 6, the second and highest gain since the recovery started. This compares to a low of -49% in April 2020, highlighting the strong start to the US driving season. Again, we believe crude prices could enjoy further momentum and continue to climb on the brightening outlook. We’re overweight the Energy sector.

—  Hugo Ste-Marie, Director Portfolio & Quantitative Strategy; Jean-Michel Gauthier, Associate Director, Portfolio & Quantitative Strategy; and Simone Arel, Research Associate, Global Equity Research 


  • Canadian home sales lost ground for a second consecutive month in May, declining 7.4% from April on a seasonally adjusted basis. Listings followed suit, falling 6.4% (sa m/m). With sales falling by one percentage point more than listings, the national-level sales-to-new listings declined to 75.4% from 76.2% in April — a welcome moderation from record-high readings earlier this year, which peaked at 91% in January. This slowdown could well be related to the third wave of COVID-19, when much of the country was under lockdown, as well as the erosion in affordability after months of unsustainable price increases and persistent shortages in supply. Whatever the case, buyers didn’t appear to be rushing to qualify for a mortgage before June 1 when the Office of the Superintendent of Financial Institutions’ tighter stress test came into effect — at least not enough to record a sales gain; likely because those affected by the new measures have already been priced out of the market.
  • The housing market, however, remains historically strong. It’s important to remember that sales were up 103.6% year-over-year on a non-seasonally adjusted basis when compared to May 2020 — a month that had fully recovered the largest monthly sales decline on record in April 2020 but was the worst May since the late 1990s. In comparison to this 2000-2019 May average, which gives a better idea of this month’s results, sales in May 2021 were 45% (sa) higher. At the current rate of activity, national inventories would be liquidated in 2.1 months. While this is an improvement from the fastest rate on record in March 2021 of 1.7 months, it is still markedly lower than its long-term average of five months.
  • The chronic shortages in housing supply, which have been underlying imbalances in the market long before COVID hit, continue to be the most pressing issue facing the housing market. We still expect the output gap to close and move into excess demand by end of this year. As a result, we are forecasting a Bank of Canada rate hike by Q3 2022. As domestic and global conditions continue to improve, jobs recovery and population growth will continue to support housing market prices, which are more likely to go up than down until a better supply-demand balance is achieved.

—      Farah Omran, Economist

Foreign Exchange

  • The Canadian dollar (CAD) has lost its billing as the top performing major currency so far this year, ceding the No. 1 spot to the South African rand. The CAD’s rally has come off the boil in the past couple of weeks, with the US dollar (USD) finding more solid footing around the 1.20 level. 
  • It’s not too surprising that better two-way flow has emerged around this point — the USD’s run lower has been largely correction-free for the past few weeks and the Fed’s more hawkish stance after Wednesday’s FOMC suggests that US policy-makers may be thinking about moving away from providing aggressive accommodation in the coming months. Investors had become a little concerned that the Fed is getting behind the inflation ball and would need to shift policy sooner rather than later, giving the USD some support from bargain hunters, who are taking advantage of the USD trading at its lowest level against the CAD since 2015. 
  • We remain constructive on the outlook for the CAD, however, and feel that the USD’s rebound through the 1.22 level is not fully justified by CAD-positive fundamentals. These positives include a domestic  economic recovery that retains solid momentum; a world-leading 65% of Canadians with at least one COVID vaccination; Canadian bond yields maintaining a premium over US government bond yields through the belly of the curve (even after the jump in US yields following the Fed decision); and relatively firm commodity prices, despite heightened volatility in some markets (e.g. lumber) recently. These factors combined suggest that the USD may struggle to extend gains meaningfully in the short/medium term. We continue to target a drop in USDCAD to 1.19 later this year.

—  Shaun Osborne, Managing Director, Chief FX Strategist, and Juan Manuel Herrera, FX Strategist 


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