Investors should expect Canadian asset prices to move in lock-step with global resource cycles in general and crude prices in particular, says BCA Research.

In a new research note, the Montreal-based investment research firm says, “The rapid increase in global energy demand has pushed crude prices to levels which have made the Oil Sands viable, and has helped drive up the Canadian dollar by almost 40% since 2001.”

Further, it predicts that the Canadian dollar will continue to become “an oil play.”

“While the Canadian trade surplus is still huge, it has been entirely supported by commodities. When resource exports are stripped out, the deterioration in the competitiveness within non-resource export markets is evident,” it points out. “On this basis, Canada has a trade deficit of about $25 billion and it is growing rapidly.

“From a market perspective, so long as global energy demand continues to rise, the dominance of the energy sector over the Canadian equity market will grow and any remaining diversification will be further reduced,” it cautions.