Crude oil, also known as black gold, is the major energy source that runs the economy. Canada is among the top oil producers in the world. It is one of the major oil exporters to the USA. Canada exports more than 3 million barrels of petroleum and oil products, a figure that is sufficient to impact USD/CAD’s movement.
USD/CAD and Crude Oil – The Correlation
The volume of crude oil that Canada exports to the US generate massive demand for the CAD. Moreover, Canada’s economy depends a lot on its exports, and approximately 85% of the country’s exports go to the US.
Therefore, the value of USD/CAD is significantly impacted by how the consumers in the United States reach oil prices. If the US’s demand increases, manufacturers have to order more oil to cater to the rising demand. This can result in rising oil prices, thereby resulting in reducing the value of USD/CAD.
Conversely, if the US’s demand falls, the manufacturer will not need to order in more oil to make goods. Subsequently, the oil prices might fall, which would be bad from the CAD value. So essentially, USD/CAD has a negative correlation.
It’s all about Supply and Demand
Supply and demand are the prominent influencers of the correlation between USD/CAD and crude oil, impacting the demand and supply of US dollars and Canadian dollars.
Export of cruise oil covers a significant percentage of the US currency acquired by Canada. This means that a shift in the price and volume of crude oil will have a considerable impact on the flow of the Greenback into the Canadian dollar.
Furthermore, high crude oil prices also imply a higher flow of USD into Canada due to its exports. This implies that there will be a strong supply of the USD into the Canadian dollar, thereby increasing the value of the Canadian dollar.
Similarly, when the crude price falls, the US dollar supply will be lowered as opposed to the Canadian dollar, leading to a decreasing value of the Canadian dollar.