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#1 10-02-2021 20:25:07

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 3050
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USD/CAD: Oil and its influence on CAD pairs

USD/CAD: Oil and its influence on CAD pairs


Last Friday was the first Friday of the new trading month. As usual, employment data for the US and Canada was the highlight of the trading day for the currency trading community.

Trading the US dollar and the Canadian dollar through news releases is a delicate thing. One of the problems is that the two press releases are published at the same time. In other words, if the US employment data is disappointing, but the Canadian data is disappointing, what would be the reaction of the USD/CAD? This is a question that leaves many traders confused, and is why they often wait until the data is public, and only after trading the pair.

Still, there is another factor weighing on the pair - perhaps the most important. It's about the price of oil.

Oil and the way it influences CAD pairs

Let's start with the data from last Friday. The US economy created 50,000 jobs last month. In contrast, Canada lost 213,000 jobs. The gap between the two couldn't be more astounding.

Therefore, the normal reaction would be for the Canadian dollar to weaken against the US dollar. After all, America has created jobs, while Canada has lost many. Still, USD/CAD ended the day at its lowest level. More so, at Monday's opening and the remainder of the new trading week thus far, the pair has continued to move lower.

The answer? The price of oil is in a strong and upward trend. It recently climbed to $60 (eg Brent) and approached it (eg the price of WTO crude oil).

Because Canada is an energy-intensive economy, which means that much of its economic output is directly linked to oil and its products, the price of oil affects GDP. Thus, it has an impact on the currency which fluctuates in direct correlation with the price of oil.

In other words, for the Canadian dollar, what matters most is the effect of the price of oil, rather then changes in the labour market, the Ivey PMI index or other economic indicators. Since there is a lag between when the price of oil changes and when its effects are felt on economic growth, the labour market and the economy as a whole are expected to recover, if oil prices are stabilising at higher levels.

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