The Canadian dollar traded relatively flat against its US counterpart to start the trading week as the currency pair was driven primarily by energy prices. The loonie has strengthened against the greenback in the first few weeks of the calendar year, looking to build on the momentum it mustered in the second half of 2020. With energy commodities back on the rise, can the loonie test a three-year high?

March West Texas Intermediate (WTI) crude oil futures soared $2.45, or 4.14%, to $61.69 per barrel at 20:07 GMT on Monday on the New York Mercantile Exchange. US crude prices are trading at their highest levels in more than a year, buoyed by stronger demand and disruption to US output following last week’s blast of wintry weather.

Since Canada maintains a current account deficit, exports are critical to the national economy, particularly with the Great White North trying to rebound. Oil and gas remain the country’s top exports, so any price change can have an impact on the loonie and broader economy.

The Canadian bond market was mostly in the green to start the trading week, with the ten-year bond up 0.016% to 1.229%. The one-year bill was flat at 0.17%, while the 30-year bond advanced 0.025% to 1.819%.

On Friday, Statistics Canada reported that retail sales plunged 3.4% in December, worse than the market forecast of a 2.5% drop. In November, retail sales jumped 1.3%. On an annualized basis, retail trade climbed 3.3% in the final month of 2020.

This week, producer prices will be in focus, with early estimates suggesting a higher producer price index (PPI) in January.

Moreover, the statistics agency revised its measurement of core inflation less than one week after facing criticisms over its methodological adjustments. As a result, price pressures are higher than previously reported, pushing the annual core inflation rate to 1.77% last month, up from the initial release of 1.55%.

Benjamin Reitzes, rates and macro strategist at the Bank of Montreal, told Bloomberg:

It’s unfortunate how events have unfolded. The magnitude of the revisions, both in size and time horizon, should have prompted further scrutiny from Statscan before the release in order to ensure potential questions could be answered.

The USD/CAD currency pair dipped 0.13% to 1.2603, from an opening of 1.2614. The EUR/CAD rose 0.26% to 1.5332, from an opening of 1.5282.