Each currency has various attributes that can affect its current value and price movements which corresponds to other currencies in the foreign exchange market (forex). In this article, we will discuss the Canadian dollar (CAD, C$), popularly called loonie.
The Canadian dollar or the loonie is the world’s number one commodity currency. Even if it is a currency it will move alongside the commodities markets — minerals, valuable metals, and especially crude oil. Because Canada is a very large exporter of such commodities, the loonie becomes very volatile to price movements, particularly crude oil.
A lot of people especially those in the United States, when thinking about major exporters of crude oil, they think of countries in the Middle East, for instance, Saudi Arabia, Kuwait, and Iraq. But what they do not know is that Canada is the top exporter of the primary sources of crude oil consumed in the United States. Canada exports almost three million barrels of oil and petroleum per day to the United States.
The largest exporter of crude oil in the United States is Canada. According to statistics last 2009, America was consuming almost 2.5 million barrels of Canadian crude per day. Because of the enormous volume of exports, this creates a great amount of demand for the loonie. Canada’s exports determine its country’s economy. 90% of Canada’s exports go to the United States. Thus, how American consumers react to changes in the price of oil greatly influence the relationship between U.S. dollar and the Canadian dollar.
If the demand for oil in the U.S. rises then oil manufacturers will have to request more oil in Canada to sustain the demand. Therefore making an increase in the prices of oil and could possibly lead to an increase in the Canadian dollar. However, if the demand for oil in the U.S. falls then it could also affect the demand for the loonie. Oil is one of the catalysts of Canada’s economy and exports. This commodity has a negative correlation with the USD/CAD. If USD/CAD falls then the price of oil goes up. If USD/CAD rises then the price of oil goes down.
One of the favorite currencies of Forex traders, whenever they speculate on oil prices, is the loonie. This is because of the strong bonds of Canada to the oil business. The loonie and oil are very close to each other, this is because loonie is a commodity currency. The Canadian dollar is tied to commodities. It has a positive correlation with prices of commodities and movements of currencies. Forex traders tend to buy US dollars against Canadian dollars whenever oil prices fall. This method does not guarantee to be successful every time but it works most of the time. Many traders gain profit when using this technique.
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