This month, our chart highlights the relationship between the Canadian dollar and the US dollar exchange rate and oil price.
We’ve often heard that our Canadian dollar is a petro-currency. This graph, showing data for the past 20 years, clearly demonstrates an almost perfect correlation. The green line shows the fluctuation in the value of the Canadian dollar valued in US dollars since 1998.
When the green line rises, the Canadian dollar increases relative to the US dollar. When it’s dropping, it means our Canadian dollar is weakening versus the US dollar. The blue line shows oil price fluctuations for the same 20-year period. Note the almost perfect match.
Sometimes there are differences between the two lines, but the direction is the same, eventually converging.
As long as our economy remains largely dependent on oil exports, we need to be aware of, and become accustomed to, this strong relationship.
The direction of the price of oil is impossible to predict. It depends on too many factors: inventory, production, global growth, geopolitical issues, hurricanes… This means that the direction of our Canadian dollar -valid in US dollars- is equally difficult to predict in the short term.
The Key Takeaway?
When investing, having proper exposure to major world currencies is the best long-term solution.
On behalf of Total Wealth Management, thank you for watching our Chart of the Month. See you next time.