In this week’s The Seven…

• Leaning hawkish - Bank of Canada
• Dissent in the ranks - US Fed
• Another rupture moment - UAE exits OPEC
• More likely now - LNG Canada Phase 2
• Rearview mirror - Provincial economic growth in 2025
• Interesting Fact - Canada Strong Fund vs. Heritage Savings Trust Fund
• Charts of the Week - What happened to Canada’s petro-currency?

“Little darlin'

It's been a long, cold, lonely winter

Little darlin'

It feels like years since it's been here”

“Here Comes the Sun,” The Beatles

As the calendar turns to May, the sun is shining and temperatures are rising. Spring has arrived.

North American equity markets continued to rally this week, and Canadian GDP rebounded in the first quarter. The Canadian economy has been more resilient than expected given all the geopolitical shocks it’s confronted. In the energy sector, Shell’s purchase of ARC raises the odds of LNG Canada Phase 2, and yesterday President Trump approved a U.S.-Canada pipeline permit. The ATB Cormark Capital Markets Spring Energy Sector Survey points to cautious optimism in the sector.

And yet it’s not all rosy, extending well beyond the Oilers’ early exit from the playoffs. The Strait of Hormuz remains effectively closed, oil prices are now above US$100/bbl. True, Canada is a net exporter of oil and is in a relatively good spot, but consumers are already feeling the pinch. A further and prolonged increase in oil prices threatens to derail already wobbly global growth—a negative for Canada.

Moreover, the Canadian economy is not out of the woods and needs to find its legs. With the consumer under pressure, we look for a much-needed rotation towards investment and exports. The federal government reminded us this week that this is their plan, but we wait for shovels in the ground.

Bottom line: Monitor global events, but pay closer attention to what’s happening in our borders. That’s where the upside lies. Will Canada convert a Mayday global energy crisis into a May day opportunity?

Bank of Canada on hold, but sounds more hawkish

The Bank of Canada is in a holding pattern, content to wait it out for now before making its next move.

So what’s next? The Bank doesn’t tell us, so it’s our job to comb through the wording, and even the tone, of statements to see where they may lean.

On the one hand, they said that persistently high energy prices could result in "consecutive rate hikes,” especially if energy inflation becomes “generalized.” On the other hand, the Bank said it could cut if the U.S. imposes new trade restrictions.

If I had to pick a hand that is more important, it’s the first one.

The Bank is keeping a closer eye on inflation risk than downside growth risks. 5-year bond yields rose after the announcement and have stayed higher.

For now, our forecast has the Bank on hold this year. But the bar to rate hikes is, from our perspective, set much lower than the bar to cut rates.

Division in the ranks - This week’s Fed hold

Stateside, the story this week wasn’t that the Federal Reserve held at 3.5-3.75%—that was expected given sticky core inflation readings, and now new energy price pressures.

Rather, the story was dissension in the ranks, with an 8 (hold) to 4 (cut or hike bias) split. The lone dove, Stephen Miran, argued for an immediate cut due to growth risks.

With Fed Chair Jay Powell moving to a governor's seat, is this the end of the Powell Era of relative unity? Kevin Warsh inherits a fractured committee when he takes over later this month and, like Powell, will face political pressure to cut.

Another post-rupture moment - UAE bids farewell to OPEC

In Davos, Mark Carney’s "Rupture" thesis was that the post-Cold War, rules-based international order has not just transitioned—it has broken. Strategic autonomy and alliances are the new name of the game.

It seems we have another example this week with the United Arab Emirates (UAE) leaving OPEC. By exiting, the UAE has chosen national autonomy over the collective stability of the OPEC oil cartel.

How does this affect Canada? Through a couple channels. First is oil prices. In the near term, expect little impact because the Iran conflict and Strait of Hormuz disruptions have trapped UAE production. But over the medium term, as shipping lanes clear, the UAE will have more flexibility to push toward its goal of increasing production to 5 million barrels per day by 2030. This could eventually pull prices lower, and lead to more volatility in the price.

The second channel is related to Canada’s own economic sovereignty and clout. Countries like the UAE are taking matters into their own hands to gain more economic power. This puts more pressure on Canada to do the same: be globally competitive and realize its energy superpower ambitions.

Momentum building  - One step closer to more West Coast LNG

On the theme of gaining energy might, Canada has moved one step closer to LNG Canada Phase 2 based on two major developments over the past week:

• Shell’s $13.6 billion (USD) acquisition of ARC Resources announced April 27 gives the project proponent a massive, dedicated source of low-cost natural gas from the Montney Basin. 
• The federal government’s approval of the $4-billion Enbridge Sunrise Expansion on April 24 will add 300 million cubic feet per day of pipeline capacity.

LNG Canada Phase 1 is the first major LNG export terminal built in Canada. This was a case of ‘better late than never’, as the U.S. has been ramping up its LNG exports over the past decade.

Canada has some key advantages over the U.S. gulf coast, including shorter shipping times to Asia, colder temperatures (reducing power requirements for liquefaction) and low-cost abundant natural gas feedstock from the Montney and Duvernay formations in B.C./Alberta.

The Spring 2026 Energy Sector Survey  from ATB Cormark Capital Markets shows that West Coast LNG expansion is the top opportunity for the Canadian energy sector.

Under an optimistic scenario, Canada could build 50 million tonnes per annum (MTPA) of export capacity by the early 2030s. In addition to LNG Canada Phase 1, Woodfibre, and Cedar LNG are under construction, while Ksi Lisims LNG and LNG Canada Phase 2 are proposed and likely. LNG Canada Phase 1 has a capacity of 14 MTPA.

Rearview mirror: New GDP estimates for 2025

Under the category of ‘that’s so yesterday’, bear with us as we take a quick look in the rearview mirror. I know 2025 is a distant memory, but we just got the GDP data today.

Alberta’s economy grew 2.7% last year—the third fastest rate in the country and well above the national clip of 1.6%.* That comes in slightly higher than our own estimate of 2.3%.

The strong relative performance was driven by ongoing population growth, a record year for housing starts, rising oil production, and momentum across a broad range of sectors.

Another key variable is tariffs. Ontario and Quebec are exposed to higher sector-specific tariffs, and they grew more slowly. That’s not a coincidence: output in key industries like primary metals and autos dipped. Alberta, with the lowest effective tariff rate, faced fewer trade headwinds.

*This is GDP by industry, not GDP by expenditure which typically doesn’t come until the fall. We ‘officially’ use GDP by expenditure, but in the interim GDP by industry growth is used as a proxy.  Bottom line, we won’t actually know for sure what the official GDP growth for Alberta will be in 2025 until November!  Confused by this? You’re not alone (that’s why I’m burying these painful details in a footnote).  

Interesting Fact: Canada Strong Fund vs. Alberta Heritage Savings Trust Fund

To help finance major project investments, PM Mark Carney has announced a sovereign wealth fund (SWF), called the Canada Strong Fund. It includes an injection of $25 billion of borrowed money over three years, and a retail “buy-in” option for citizens. Details are missing, but the government promises to back the principal and provide equity returns.

This is not a SWF in a classic sense, which typically involves saving resource revenues or surpluses. That’s what the Alberta Heritage Savings Trust Fund is. Established in 1976, the Heritage Fund is Canada’s oldest and largest SWF.

• Current value: Approximately $32 billion (as of early 2026).
• Funding source: A portion of Alberta's non-renewable resource royalties and reinvested earnings.
• Goal: The provincial government has set an ambitious target to grow the fund to $250 billion by 2050 through regular contributions and reinvesting the investment earnings.

Charts of the Week: Where did Canada’s petro-currency go?

Remember when oil prices shot up, the loonie would move with it? On the one hand, it was an inflation shield, guarding against rising import costs when inflation spiked. On the other hand, it made our manufacturing goods more expensive in global markets.

This time around, the Canadian dollar is staying weak at around US$ 0.73-0.74/CDN$ despite oil trading north of US$100/bbl.

What’s going on?

1.  First, is a flight to safety to U.S. assets post the war in Iran, lifting the greenback against other currencies (including the loonie). 
2. Second, is interest rate divergence with the Bank of Canada cutting more aggressively than the Fed. 
3. Third, is a longer-term decoupling trend, as shown in our Charts of the Week (below).Higher oil prices are not translating into the same level of investment seen in Canada in the past, and the Canadian economy has underperformed the U.S. in general. Energy companies have been optimizing existing assets, but are reluctant to invest in new growth capital for a variety of reasons, including price, policy, and pipeline uncertainty.

Answer to the previous trivia question: Canada’s population passed the 40 million mark in the third quarter of 2023.

Today’s trivia question: When did the West Texas Intermediate oil price benchmark reach an all-time high daily spot price of US$145?