FOREX: Understanding Commodity-Pegged Currencies

This information in this article might be slightly outdated but the gist of it still remains.

During one of my presentations in the SMU EYE Investment FOREX Sub-committee I had the chance to test out the correlation between the US Dollar / Canadian Dollar Pair and crude oil (Western Texas Intermediate & Brent).  Of course USD/CAD could be influenced by many other factors apart from crude oil, but the movement of the pair seems largely dictated by the movement in crude oil prices. This could be due to the fact that Canada is one of the largest oil exporters in the world.

Let’s take a look at the negative (inverse) correlation between USDCAD with Brent or WTI crude oil.

WTI.PNG

So as you can see that USDCAD clearly moves in the opposite direction of oil prices because it influences the strength of the Canadian Dollar relative to US Dollar.

So here it is! A snippet of commodity-pegged currencies. We will touch on other commodity-pegged currencies in future articles.

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Till next week, have a good weekend!

Cheers,

Nigel Fernandez

 

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