What’s so special about the Loonie and oil?
For those of you who played hooky and missed our lesson in the School of Pipsology on this special relationship, here’s the 411.
Aside from producing Wayne Gretzky, your granddaddy’s Blackberry, and Yukon Dew Me, Canada is also one of the world’s largest exporters of oil. In fact, Canada exports roughly 2 MILLION barrels of oil to its neighbour down south, the United States, each and every day.
With the amount of oil that’s shipped back and forth on a daily basis, traders must pay close attention to the demand of oil, as it has a direct effect on CAD trading.
Crude Oil and the Loonie in 2013
The question is, with all the wackiness we’ve seen in 2013 from the financial markets, has the inverse correlation between oil prices and USD/CAD held? I decided to pop up a chart so we can check it out for ourselves.
For the most part, it seems that crude oil prices and USD/CAD have maintained their historical relationship.
Early in the year, oil prices dropped from just below 98.00 all the way down to 90.00, as commodities were weaker across the board. During this time, USD/CAD was on a steady rise, climbing back above parity before topping out at 1.0330.
In March, we then saw oil prices bounce back, as they rallied back up to the 97.00 mark. At the same time, USD/CAD reversed and backed off its 2013 highs and made its way down to around 1.0100.
The inverse correlation held true as well in April, as we saw both oil and USD/CAD post mid-month reversals.
Of course, technicals only tell us half the story. You’ll also have to pay attention to the ongoing developments in the economy, especially in the U.S. Uncle Sam has been showing signs here and there of improvement and if these signs do eventually lead to more progress, we could see companies expand their operations and increase spending. This in turn could lead to an increase in the demand for oil, which could trigger a downtrend in USD/CAD.
I’ll be sure to hit y’all up with updates on this special relationship from time to time! Peace out, homies!