{"id":26099,"date":"2015-01-01T16:02:53","date_gmt":"2015-01-02T00:02:53","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=26099"},"modified":"2015-01-01T16:02:53","modified_gmt":"2015-01-02T00:02:53","slug":"the-canadian-dollar-and-oil-an-imperfect-partnership","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/","title":{"rendered":"The Canadian Dollar And Oil: An Imperfect Partnership"},"content":{"rendered":"<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on December 21, 2014. <a href=\"http:\/\/seekingalpha.com\/article\/2770925-the-canadian-dollar-and-oil-an-imperfect-partnership\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n<p>A year ago, the Canadian dollar (FXC) hit my then annual 1.08 target for the USD\/CAD currency pair. <a href=\"http:\/\/seekingalpha.com\/article\/1879401-canadian-dollar-extends-weakness-as-the-bank-of-canada-sounds-fresh-alarms#comment-28147321\" target=\"_blank\">I next contemplated setting a much more aggressive year-long target of 1.16<\/a>. In February of this year, <a href=\"http:\/\/seekingalpha.com\/article\/1987731-the-bank-of-canada-welcomes-a-weaker-currency-and-a-bullish-u-s-economy\" target=\"_blank\">I made that target official<\/a>. This past week, the Canadian dollar (FXC) hit my 1.16 target on USD\/CAD. <\/p>\n<p><center><br \/>\n<figure id=\"attachment_26109\" aria-describedby=\"caption-attachment-26109\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USDCAD.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USDCAD.png\" alt=\"The U.S. dollar has steadily gained over the Canadian dollar since this summer&#039;s bottom\" width=\"550\" height=\"375\" class=\"size-full wp-image-26109\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USDCAD.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USDCAD-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-26109\" class=\"wp-caption-text\">The U.S. dollar has steadily gained over the Canadian dollar since this summer&#8217;s bottom<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>Instead of generating an even higher target for next year or early 2016, <a href=\"http:\/\/seekingalpha.com\/article\/2737355-the-canadian-dollar-overshadowed-by-a-strong-u-s-jobs-report\" target=\"_blank\">I have finally turned bullish on the Canadian dollar<\/a>. For me, the earlier decline in the Canadian dollar helped strengthen the Canadian economy through a resuscitation of exports. As this is happening, the unemployment rate is finally showing notable improvement again. Add in <a href=\"http:\/\/seekingalpha.com\/article\/2719085-a-strong-canadian-gdp-report-ignored-a-contrarian-opportunity-in-the-making\" target=\"_blank\">healthy GDP growth<\/a>, I felt justified in finally turning bullish on the Canadian dollar even ahead of achieving my 1.16 target for USD\/CAD.<\/p>\n<p>This bullishness of course looks out of step with the on-going collapse in oil prices (USO)&#8230;<\/p>\n<p><center><br \/>\n<figure id=\"attachment_26110\" aria-describedby=\"caption-attachment-26110\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USO.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USO.png\" alt=\"Oil makes a rare attempt at a bottom: buying volume on United States Oil ETF (USO) soars\" width=\"550\" height=\"375\" class=\"size-full wp-image-26110\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USO.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USO-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-26110\" class=\"wp-caption-text\">Oil makes a rare attempt at a bottom: buying volume on United States Oil ETF (USO) soars<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>&#8230;and the persistent strength of the U.S. dollar index (UUP) since the summer&#8230;<\/p>\n<p><center><br \/>\n<figure id=\"attachment_26114\" aria-describedby=\"caption-attachment-26114\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_DXY0.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_DXY0.png\" alt=\"The U.S. dollar index is up over 10% since the end of June\" width=\"550\" height=\"375\" class=\"size-full wp-image-26114\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_DXY0.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_DXY0-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-26114\" class=\"wp-caption-text\">The U.S. dollar index is up over 10% since the end of June<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>{snip}<\/p>\n<p>The conventional assumption says that Canada has a commodity-driven economy and thus has a &#8220;commodity currency.&#8221; However, in September for example, &#8220;mining, quarrying, and oil and gas extraction&#8221; was just <a href=\"http:\/\/www5.statcan.gc.ca\/cansim\/a26?lang=eng&#038;retrLang=eng&#038;id=3790031&#038;paSer=&#038;pattern=&#038;stByVal=1&#038;p1=1&#038;p2=31&#038;tabMode=dataTable&#038;csid=\" target=\"_blank\">8.4% of GDP<\/a>. &#8220;Agriculture, forestry, fishing and hunting&#8221; was another 1.5%. Energy as a sector is 9.7% of GDP. (Granted, these numbers do not untangle dependencies across sectors or address the heavier dependence of certain provinces on commodities). {snip}<\/p>\n<p>{snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_26104\" aria-describedby=\"caption-attachment-26104\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsCanadianDollar.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsCanadianDollar.png\" alt=\"Oil versus USD\/CAD - almost mirror images of each other\" width=\"550\" height=\"365\" class=\"size-full wp-image-26104\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsCanadianDollar.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsCanadianDollar-300x199.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-26104\" class=\"wp-caption-text\">Oil versus USD\/CAD &#8211; almost mirror images of each other<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/research.stlouisfed.org\/fred2\/graph\/?g=UR9\" target=\"_blank\">St. Louis Federal Reserve<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>The exact correlations tell a more nuanced story. {snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_26105\" aria-describedby=\"caption-attachment-26105\" style=\"width: 473px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_CorrelationOilVsUSDCAD.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_CorrelationOilVsUSDCAD.png\" alt=\"Oil and the Canadian dollar: not quite synchronized\" width=\"483\" height=\"291\" class=\"size-full wp-image-26105\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_CorrelationOilVsUSDCAD.png 483w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_CorrelationOilVsUSDCAD-300x180.png 300w\" sizes=\"auto, (max-width: 483px) 100vw, 483px\" \/><\/a><figcaption id=\"caption-attachment-26105\" class=\"wp-caption-text\">Oil and the Canadian dollar: not quite synchronized<\/figcaption><\/figure><br \/>\n<strong>Source for data: <a href=\"http:\/\/research.stlouisfed.org\/fred2\/graph\/?g=UR9\" target=\"_blank\">St. Louis Federal Reserve<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>The weekly correlations are consistently stronger (more negative) than the daily correlations&#8230;{snip}<\/p>\n<p>The following scatterplot further emphasizes the lack of a strong (inverse) correlation between USD\/CAD and oil (WTI).<\/p>\n<p><center><br \/>\n<figure id=\"attachment_26115\" aria-describedby=\"caption-attachment-26115\" style=\"width: 473px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsUSDCADPctChange.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsUSDCADPctChange.png\" alt=\"A &quot;tendency&quot; for USD\/CAD and oil to trade in opposite directions but definitely NOT a strong (inverse) correlation\" width=\"483\" height=\"371\" class=\"size-full wp-image-26115\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsUSDCADPctChange.png 483w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141218_OilVsUSDCADPctChange-300x230.png 300w\" sizes=\"auto, (max-width: 483px) 100vw, 483px\" \/><\/a><figcaption id=\"caption-attachment-26115\" class=\"wp-caption-text\">A &#8220;tendency&#8221; for USD\/CAD and oil to trade in opposite directions but definitely NOT a strong (inverse) correlation<\/figcaption><\/figure><br \/>\n<strong>Source for data: <a href=\"http:\/\/research.stlouisfed.org\/fred2\/graph\/?g=UR9\" target=\"_blank\">St. Louis Federal Reserve<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>{snip}<\/p>\n<p>I also checked for the potential of a one-day or one-week timelag in the correlation with oil as the cause and USD\/CAD as the effect. I consistently found absolutely no correlation across all the years since 2009. This finding suggests that the direct correlations are at least meaningful.<\/p>\n<p>The overall lesson here is that the Canadian dollar COULD weaken further on lower oil prices, but there is a lot more to the story especially when measuring the Canadian dollar against the U.S. dollar. If Canada&#8217;s economy continues on its path of strengthening as I expect, the drama unfolding in the oil patch will become more and more of a sidebar rather than the main plot line.<\/p>\n<p>{snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_26123\" aria-describedby=\"caption-attachment-26123\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_FXC.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_FXC.png\" alt=\"The Canadian dollar is still locked in a downtrend from the post-crisis peak in 2011\" width=\"550\" height=\"375\" class=\"size-full wp-image-26123\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_FXC.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_FXC-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-26123\" class=\"wp-caption-text\">The Canadian dollar is still locked in a downtrend from the post-crisis peak in 2011<\/figcaption><\/figure><br \/>\n<strong>Source: <a href=\"http:\/\/www.freestockcharts.com\/platform\/v1\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>Be careful out there!<\/p>\n<p>Full disclosure: short USD\/CAD<\/p>\n<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on December 21, 2014. <a href=\"http:\/\/seekingalpha.com\/article\/2770925-the-canadian-dollar-and-oil-an-imperfect-partnership\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>(This is an excerpt from an article I originally published on Seeking Alpha on December 21, 2014. Click here to read the entire piece.) A year ago, the Canadian dollar (FXC) hit my then annual 1.08 target for the USD\/CAD currency pair. I next contemplated setting a much more aggressive year-long target of 1.16. In &#8230; <a title=\"The Canadian Dollar And Oil: An Imperfect Partnership\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[235,199,20,21],"tags":[296,299,536,1591,469],"class_list":["post-26099","post","type-post","status-publish","format-standard","hentry","category-canada","category-commodities","category-forex","category-u-s-dollar","tag-canadian-dollar","tag-dxy0","tag-oil-2","tag-u-s-dollar","tag-usdcad"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>The Canadian Dollar And Oil: An Imperfect Partnership - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Canadian Dollar And Oil: An Imperfect Partnership - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"(This is an excerpt from an article I originally published on Seeking Alpha on December 21, 2014. 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ONE-TWENTY TWO: Trading Financial Markets","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/","og_locale":"en_US","og_type":"article","og_title":"The Canadian Dollar And Oil: An Imperfect Partnership - ONE-TWENTY TWO: Trading Financial Markets","og_description":"(This is an excerpt from an article I originally published on Seeking Alpha on December 21, 2014. Click here to read the entire piece.) A year ago, the Canadian dollar (FXC) hit my then annual 1.08 target for the USD\/CAD currency pair. I next contemplated setting a much more aggressive year-long target of 1.16. In ... Read more","og_url":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/","og_site_name":"ONE-TWENTY TWO: Trading Financial Markets","article_published_time":"2015-01-02T00:02:53+00:00","og_image":[{"url":"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USDCAD.png","type":"","width":"","height":""}],"author":"Dr. Duru","twitter_card":"summary_large_image","twitter_creator":"@drduru","twitter_site":"@drduru","twitter_misc":{"Written by":"Dr. Duru","Est. reading time":"3 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/#article","isPartOf":{"@id":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/"},"author":{"name":"Dr. Duru","@id":"https:\/\/drduru.com\/onetwentytwo\/#\/schema\/person\/d9569fde6c701b021a8d958f775be9a0"},"headline":"The Canadian Dollar And Oil: An Imperfect Partnership","datePublished":"2015-01-02T00:02:53+00:00","mainEntityOfPage":{"@id":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/"},"wordCount":621,"commentCount":0,"publisher":{"@id":"https:\/\/drduru.com\/onetwentytwo\/#\/schema\/person\/d9569fde6c701b021a8d958f775be9a0"},"image":{"@id":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/#primaryimage"},"thumbnailUrl":"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/12\/141219_USDCAD.png","keywords":["Canadian dollar","DXY0","oil","U.S. Dollar","USD\/CAD"],"articleSection":["Canada","Commodities","Forex","U.S. Dollar"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/#respond"]}]},{"@type":"WebPage","@id":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/","url":"https:\/\/drduru.com\/onetwentytwo\/2015\/01\/01\/the-canadian-dollar-and-oil-an-imperfect-partnership\/","name":"The Canadian Dollar And Oil: An Imperfect Partnership - 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