Foreign currency traders always need to think about how a variety of markets can impact the trades that they make in currencies. As it turns out, one of the other types of markets that traders should look at includes the oil markets. How do they trade against the USDCAD pair?
Oil is completely necessary for our modern economy. Canada happens to be one of the world’s largest exporters of oil in the world. They exported more than 4 million barrels to the United States alone every day in 2021. This makes Canada the main supplier of oil to the United States out of any other country in the world.
Canada’s economy is heavily dependent on exports of oil, but it also creates a lot of demand for Canadian dollars to buy all of the oil that they need out of Canada.
If the U.S. economy is humming along and demand is increasing, then more oil may need to be imported into the country. That could lead to a fall in the USDCAD pair, as more money goes into buying Canadian dollars to purchase more oil.
If the U.S. economy is faltering, then oil demand may decrease, and the USDCAD may find itself soaring.
Oil had a negative correlation with the USDCAD pair for about 93% of the time between 2000 and 2016.
To see how those correlations go, check out the chart below to get a better idea of what is happening (USDCAD in blue and WTI Oil in orange, with the correlation coefficient below):
As you can see, the correlation coefficient often hits the -1 mark, indicating a strong negative correlation. The next time you put gas in your car, pay attention to what the price is. Maybe you can even use that information to inform your trades of USDCAD!
In reality, you probably will want to pull up some charts of oil on your Forex broker before you make any kind of trade in the market. Those charts can help inform you about the status of the oil and use that information to help you decide how you might want to trade the USDCAD pair.
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