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“Only recently have we started to see some positive signs coming from non-energy investment and production as corporate Canada started to response to the dollar depreciation,” said Benjamin Tal, deputy chief economist at CIBC World Markets. “This fragile recovery might be at risk as higher oil prices lead to a stronger loonie. Simply put, we suffer the pain of a higher dollar without the gain of rising oil prices.”

Oil prices have rallied from slightly below US$30 at their low this year to more than $40 as of Monday, but Tal notes that the price gain is not enough to make a meaningful impact on Canada’s energy sector. Most companies will not even consider increasing capital spending or hiring unless prices move significantly higher.

At the same time, the gains in the loonie could have very real impacts on investment and job creation for manufacturing firms. Canada’s manufacturers have been burned by the loonie before, especially in the years following the financial crisis, where the loonie crashed from parity with the U.S. dollar down to below 80 cents — only to rebound to parity two years later.

“The 6-cent appreciation in the value of the dollar can make a difference in the decision making process for some (or many) manufacturing firms,” said Tal.

The developments leave Canada’s economy at risk of getting stuck in an “oil twilight zone” until oil prices either rebound to a level where energy firms start spending again or manufacturers and exporters see a clearer sign that the loonie won’t be moving much higher.

That will make for an interesting Bank of Canada rate announcement next month. It is likely Governor Stephen Poloz will include comments about the loonie if it stays at this level or moves even higher before the April 13 meeting.