Intermarket Correlations Update: Oil and CAD to Advance?

Market watchers are paying close attention to commodities these days as the OPEC is moving closer to an output deal. What could this imply for intermarket correlations in the forex arena?

For the newbie traders out there, don’t forget to review our School lesson on forex correlations before reading on!

USD/CAD vs. Crude Oil

Since crude oil is positively correlated to the Loonie because of Canada’s reliance on its energy sector, USD/CAD typically moves in the opposite direction of the commodity. And as you can see from the chart below, this correlation seems to have held up quite well over the past couple of months.

USD/CAD vs. Crude Oil

USD/CAD vs. Crude Oil

The outcome of the OPEC gathering in Algiers could spur big moves for both “black crack” and the Canadian currency, as energy ministers finally agreed that they need to cap production in order to prevent a price collapse. This could keep the commodity supported in the long run, depending on the size and scale of their output freeze, which could support revenues for Canada’s energy industry.

AUD/USD vs. Gold

As for the Aussie and gold, prices had been moving hand in hand since early August up until this week. As you can see in the red highlighted portion, the precious metal suffered a sharp drop while the Australian currency continued to advance.

AUD/USD vs. Gold

AUD/USD vs. Gold

This split was likely due to different market forces dominating their price action these days. While the Aussie has been strongly supported by lower odds of an RBA interest rate cut, gold has taken a dive on sustained Fed rate hike expectations before the end of this year. To top it off, the recovery of the dollar and U.S. equities after Monday’s presidential debates also dampened demand for the safe-haven precious metal.

Moving forward, gold and AUD/USD price action could continue to diverge, unless economic data casts doubts on these monetary policy biases. Either that or significantly strong U.S. reports could seal the deal for a Fed rate hike in November or December, outweighing the impact of not-so-dovish RBA expectations, allowing the Aussie and the precious metal to move in tandem again.

Think these forex correlations could keep holding up or are we about to see new patterns moving forward? Don’t be shy to share your thoughts on where these commodities or pairs might be headed!

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