Canadian Dollar linked to Oil

It seems Canadian exchange rates are highly correlated with the price of oil. This is not surprising, as resource-rich Canada has the second largest proven oil reserves in the world. In short, as oil has soared to record highs, the Canadian Dollar has also risen. At this point, a play on the Canadian Dollar is tantamount to betting the price of oil will continue to surge. A general rise in commodity prices has also made Canadian natural resource companies more profitable and hence, more valuable. Foreign investors have poured money into Canadian resource stocks, some of which may soon be acquired by foreign firms. These investments necessitate foreign currency conversion into Canadian Dollars, which has further boosted the currency. If this were not enough, Canada’s economy is strong, its trade surplus is growing, and its Central Bank may soon raise interest rates. Bloomberg news reports:

“Oil, equities and general U.S. dollar selling” is supporting the Canadian dollar, said a chief foreign-exchange strategist. The Canadian dollar may also benefit from being included in China's currency basket as investors speculate about “the Chinese putting more of their money into Canada.”

Read More: Canadian Dollar Rises to Highest Since March on Oil-Price Surge