TRADING CORRELATION BETWEEN THE USD/CAD AND USOIL

—USOIL and USD/CAD are negatively correlated as they generally can be seen moving in opposing directions.

Canada–United States petroleum trade relations

—Canada has the third-largest volume of oil reserves in the world after Saudi Arabia and Venezuela.
—Most of this oil is found in the unconventional sources Alberta’s oil sands.
—Almost all Canadian oil exports go to the US, causing a transfer of funds along the way.
—Canada and OPEC Countries represent the major sources of US petroleum imports: 38% and 34% respectively.

How the ratio between export and import influence the exchange rates?

—If the price of a country’s exports is greater than its import prices, it tends to show currency appreciation.

—The CAD has a high correlation to USOil due to
(i) the large portion of CAD oil exports is shipped to the US, and
(ii) because of crude oil export accounts, a large portion of the US currency is earned by Canada.

—When prices of USOIL increase, this increases the number of funds transferred from USD to make purchases of Canadian resources.
—As a result, an increase in the demand for Loonie is expected, and so a decrease in USD/CAD exchange rates.
—Conversely, when the price of oil is low it will result in a fall in the value of the Canadian dollar and so increase in USD/CAD exchange rates.


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