The Canadian Dollar - A Petro-Currency

If you ever doubted the fact that the Canadian Dollar is a petro-currency; that is its value is highly correlated to the value of petroleum, have a look at these two charts.

The chart on the left is value of the Canadian Dollar versus the US Dollar. Note how the value stayed in the $0.96 USD to $1.02 USD range until August. Then in September the Loonie fell off a cliff as it plunged from $0.96 to a $0.77-$0.80 range. No more cross boarder shopping, and my US stock holdings essentially all increased their dividends and didn’t fall as much as they truly did in the market.

Now look at the chart on the right showing the value of oil through the US Oil Fund ETF (USO) which tracks the price of the black stuff. The exact same pattern is evident, a July/August drop preceded a September plunge. One of my vehicles now costs $20 to fill up and the other costs $30.

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Comment by Buck

2008-12-09 09:06:25

One year does not a trend make. How bout going back twenty years with both charts to see what if any correlation can be gleaned?

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Comment by Stefan

2008-12-10 02:43:01

I agree with Buck, and I will add that this year is not comparable alone especially as there were financial shocks and oil price was ultra high.

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