How Oil Moves with USD/CAD?
2 min read
The exchange rate between Canada and the U.S. is often strongly correlated to the worth of oil. Over the end of the day, when the worth of oil rises, the worth of the Canadian dollar also usually rises relative thereto of the U.S. dollar. That correlation are often directly attributed to the way Canada earns most of its U.S. dollars—from the sale of crude oil—and the share of Canada’s revenue that this constitutes.
The Canadian dollar, called the loonie, tends to run lockstep with oil prices. Canada is among the highest 5 oil-producing and exporting countries. The future of Canadian oil is shaky as export costs are high and lots of countries and businesses are moving toward renewable energy sources.
The price of any commodity or service is decided by supply and demand, and within the case of the Canadian/U.S. dollar rate of exchange, the worth is decided by the demand and provide of both Canadian dollars and U.S. dollars. Because petroleum exports account for an outsized portion of U.S. currency that’s earned by Canada, movements within the price and therefore the volume of petroleum have a big impact on the flow of U.S. dollars into the Canadian economy.
When oil prices are high, the quantity of U.S. dollars Canada earns on each barrel of oil it exports are going to be high. Therefore, the availability of U.S. dollars flowing into Canada are going to be high relative to the availability of Canadian dollars, leading to a rise within the value of the Canadian dollar. Conversely, when the worth of oil is low, the supply of U.S. dollars are going to be low relative thereto of the Canadian dollar , leading to a decrease within the value of the Canadian dollar
