09:40 AM EDT, 04/03/2024 (MT Newswires) -- The run-up in oil prices is making no impression on the Canadian dollar (CAD or loonie), noted Bank of Montreal (BMO).

This is quite a change from the past two decades when a $10/barrel rise in oil would regularly boost the Canadian dollar by 3 cents (US) or more, said the bank.

According to BMO, the relationship has broken down for two major reasons: 1) the United States itself is now a major oil producer, and the CAD is, after all, a relative price, and 2) capacity constraints mean that oil prices just don't have the same torque for the Canadian economy as before.

The implication of the breakdown is that the exchange rate no longer buffers the economy from swings in oil -- inflation is fully pumped, as consumers bear the weight, while producers reap the rewards, stated the bank.

As a consequence, for the Bank of Canada (BoC), higher oil prices are more clearly a hawkish development, added BMO.