Crude oil and the Canadian dollar have historically had a very strong relationship, most of the time, the two assets that have a high degree of correlation.
This can be explained by the fact that Canada has that you reservations in the second-largest oil company in the world after Saudi Arabia. In addition, a large number of these oil reserves is pumped into the United States, making Canada the largest source of energy for the American economy. Thus, investors focus on crude oil prices to measure the direction of the Cad of the negotiation.
The correlation between crude oil and Cad was quite easy to exploit at the time, but all this came to an end in the last few weeks as crude oil began to fall quickly while the Canadian dollar fell only a few basis points during the same period. Probably, this is due to different fundamental factors: oil fell as the market was re-pricing the outcome of the global demand, while the Cad traded mainly linked range, along with the rate of the dollar and other major currencies, as it seems that the financial market saw dollar more than it would ever be necessary (the market remained in the mode of) (only for a brief period risk aversion).
The attached graph shows how behaved DAC and crude oil in the past 15 months (from 03.01.2008 to 07.14.2009), while the secondary chart shows the weekly correlation between the two. The green zone denotes the periods when it was the implicit correlation between - 0.5 and - 1.0, which are the phases when crude oil can be used for the direction of forecasts Cad. As a note, the long periods when the crude oil and Cad did not have any correlation or moved in the same direction - which we have right now, by the fact that the rate of correlation varies between - 0.5 and 1.00 - occurred only when the market reversed the previous trend.
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