When will our dollar come back to a common value that we are comfortable with? Since the global oil rout began in late 2014, everyone has been trying to call a bottom in crude prices. Looking at it with a wider perspective, crude prices have a huge impact on the global economy as a whole, directly influencing those countries that are major exporters of it. Canada, the world’s sixth largest oil-producing country by volume is particularly exposed to fluctuations in crude prices, and its currency reflects this by showing a strong correlation to crude oil prices (given no other major economic developments).

Adding to this point, Canada’s largest trading partner for oil is just south, as the United States gobbles up more than 95% of its crude exports. Oil is priced in U.S. dollars (USD), so lower oil prices mean less U.S. dollars coming in per barrel exported. Less USD supply drives up the value of USD versus the Canadian dollar (CAD), resulting in a weaker Canadian dollar.

The weakening of the Canadian dollar is a major concern for anyone who has immigrated to the United States from Canada, and a great boon for anyone looking to move to Canada or buy property here.

So now for the 96.5-billion-barrel question: Have oil prices bottomed? Speculators look to global events for a clue as to a bottom forming for oil, as every OPEC meeting and every meeting between Russia, Iran, or Saudi Arabia about oil production immediately causes a spike in crude. If the talks yield nothing of substance, crude prices immediately fall back down. Is this just the Wall Street, or is there more to it? The answer lies in Economics 101: Supply and Demand.

Oil speculators know that a commodity’s price is dependent on the balance between the supply present and available for use and the current and future demand of that commodity. When representatives from OPEC, Russia, Saudi Arabia or Iran meet with each other, speculators are hoping for an agreement that affects the supply/demand balance with a lessening of the future supply via production cuts, or at least a freezing of the output to allow for demand to outpace supply. It is the underlying supply data, however, that suggests we’ve bottomed out in crude prices and thus the Canadian dollar in the short-term at least.

Is oil turning around, and could it possibly be undervalued.

Well if we look at the price at the pump it seems to be rising slowly. Although yesterday I bought some US currency and paid the highest exchange I have in recent years. Time will tell but as we know our currency is valued to our resources.

 

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