USD/CAD strategy: oil, rates or both?
USD/CAD answers to two masters: oil prices and the interest-rate gap between the Fed and the Bank of Canada. The pair's character changes depending on which master is active.
How do you trade it?
- the weight you give oil versus rate expectations
- the Canadian releases that matter to you
- the regime where your model failed
The oil and CAD guide and commodity currencies guide cover the channels.
Background: Oil and currencies: why crude prices move the Canadian dollar
Crude oil links energy markets to currencies through trade, inflation and interest rates. How that works for the Canadian dollar, and why the link isn't fixed.
Why does oil affect the Canadian dollar?
Crude oil is one of Canada's largest exports. Higher prices increase export earnings and demand for Canadian dollars, and they also affect inflation and interest rate expectations.
Does USD/CAD go down when oil goes up?
Often, because a stronger Canadian dollar pushes USD/CAD lower. But the relationship isn't fixed: interest rates, trade relations and risk sentiment can outweigh oil.
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