To start with, Canada is considered one of the ten largest crude oil exporters in the world, and this makes its currency, Canadian dollar, very lucrative for Forex traders who like to speculate on the oil prices. This speculation appears to be very profitable, since the loonie (as the Canadian dollar is often called) is a classical commodity currency.
The essence – when the oil prices are rising, Canadian dollar strengthens respectively (against US dollar in particular), since price for oil is denominated in the greenback. Accordingly, forex trades prefer to go long for the US dollars and to go short for Canadian ones when the oil prices are falling. It must be mentioned that this strategy appears to be very beneficial for the Forex traders in the majority of cases.
Every Forex trader willing to make profit on the Canadian dollar should keep in mind that one of the key factors supporting the strength of the Canadian dollar is the closeness of the two major stable buyers of Canadian oil – the USA and Japan. What is more, Canada is said to have the second largest reserve of oil in world, which is important in the context of constant flourishing demand for this commodity that is most likely to continue in future. This results in the fact that Canada and Canadian dollar are ready to meet and satisfy the world demand for oil.
As far as Forex market analysis is concerned, when using technical charts in order to spot the correlation between the Canadian dollar performance in relation to the oil, it becomes obvious that this correlation is very tight. It means that if the Canadian oil takes the leading positions, its dollar’s value rises, too. Thus, oil movements turn out to be a reliable indicator which prompts a Forex trader whether to sell or to buy the Canadian dollars.
Another thing to remember is that one more way to speculate on the correlation between Canadian dollar and oil is exchange-traded funds concentrated on the Canadian currency.
However, the main conclusion is that relations between Canadian dollar and such commodity as crude oil which is Canada’s major export are very profitable for forex trading. In particular this refers to the USD/CAD currency pair. In addition, the price action of the oil indicates to the trading opportunities as far as Canadian dollar is concerned.
This guest post is written by Alexander Collins who is a founder of Forex company. Forexeasystems can offer every trader wide range of forex trading systems that work since 2007.
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