We noted several weeks ago the Canadian Dollar would become more linked to the price of oil when Oil drops below $95 per barrel. This means the USDCAD could easily fall in price even more as oil falls further.
Oil is now trading a remarkable $85 per barrel, and the Canadian Dollar has dropped significantly over the last several weeks in tandem with the drop in the price of oil.
Many people believe Saudi Arabia is pushing down the price of oil to try and destablize the regimes in Iran and Iraq. This price push from Saudi Arabia is happening in parellel with a large unwind in speculative long positions in oil futures, much like happened last May.
Oil dropped to $75 a barrel in the late summer 2011 as these speculative positions were unwound. Oil could easily go lower this year as Saudi Arabia is also pushing for a decline in price.
Add in a near recession in the United States, and the outlook isn’t good for oil. As a result, we can expect further weakness in oil, and therefore the Canadian Dollar.
Related posts:
- Oil and the Canadian Dollar, Together Again
- Generate FX Signals 4-4-2012: The Australian Dollar breaks lower
- Is the U.S. Dollar in trouble? You can’t tell from looking at the U.S. Dollar index
- Revenge of the U.S. Dollar: TF 101 Signals 3-14-2012
- Australian Dollar blowing out due to Carry Trade Unwind
Michael Sankowski spends a lot of his time applying quantitative mathematics to financial markets. When he's not playing the guitar, he has been a professional trader for 20 years. He's traded billions of dollars on four continents and is a well-known financial writer. He's a CFA, CAIA, and has created patented Futures products. He's here to help you make more money (and especially not lose your money).
