A little bit less famous but nonetheless as important to is us the connection between the CAD and oil.
Fun fact – even though US are digging up their own oil Canada is still a number 1 exporter of oil into the USA with almost 3 million barrels exported into the US every day.
And that is only USA. Imagine how much oil Canada extracts if they are to supply other countries with black gold as well.
That means that oil is the major export product of Canada. And that means that there is nothing strange in the fact that Canadian national currency – Canadian dollar is tightly connected to prices for oil. But how is the connection working?
Well, the more oil US are demanding, the more oil the Canadians are forced to try and produce. This is rising the oil supply worries and calls for a higher oil prices. In this case CAD is going to go down.
Vice versa – when US demand for Canadian oil fails, manufacturers of oil produce less of it. Demand for oil falls as well as demand for CAD.
This is a little bit more difficult than we thought it would be, right?
Well – look at it this way: the higher the prices for oil are, the lower USD/CAD goes. The lower the prices for oil are, the higher USD/CAD is going to surge. This means that there is negative correlation between these two assets.
So, again by looking at one asset you can easily predict what is going to happen to the other one. Sell oil – buy USD/CAD!