Oil recovery in 2016 will strengthen Loonie

The forecasts of a recovery in oil prices next year will boost Canadian currency Loonie. Analysts predict the current weak oil markets may stage some recovery in 2016. Naturally, the surge in oil price will propel oil currencies including the commodity currency Loonie.

Dominic Schnider, UBS Wealth Management's head of commodity and Asia-Pacific forex, said: "The oil market is oversupplied, doesn't look great in the short run, but there is still a recovery story for the second half."

According to a report by CNBC, the Canadian dollar (Loonie) is closed associated with the US economy. The world's largest economy is witnessing recovery signs. At this moment, any recovery in oil prices will push up Canadian currency Loonie also.

Canadian dollar fell 20 percent against the US dollar this year so far. The continuous drop in oil prices by about 40 percent in 2015 has a great negative impact on Loonie. The energy companies are also not performing well owing to lower oil prices.

Market Pulse reports that commodity currency Loonie has been suffering losses owing to the continuous fall in oil prices and low demand for gold throughout 2015. The New Prime Minister is focusing on fiscal stimulus to strengthen Canadian economy.

West Texas Intermediate (WTI) and Brent crude oil prices are trading at multi-year lows. The oil price is hovering at $37-38 a barrel. Oversupply and Opec's continuous production are impacting the oil prices. Opec is firm on its production level of 30 million barrels per day.

The oil prices are reeling under pressure owing to year-end tax selling regardless of factors such as the slump in the Chinese economy, bleak outlook, oversupply and lower demand. Smith forecasts that demand may pick up next year.

Reuters further reports that Canadian dollar is sensitive to oil price fluctuations. Canada is one of the major oil exporters in the world. The Canadian dollar against the US dollar fell as oil prices are declining.

Bill Smith, chief investment officer and senior portfolio manager of Battery Park Capital in New York, said: "Massive disconnect between reality and what the future of oil prices will be. The outlook is positive from both the supply and demand side."

Smith said the about 60 percent down in rig count in North America. Adding to this "multiple wars are raging in the Middle East. So there's a lot of capacity coming out." Australia and London markets were closed for local holidays.