The Canadian dollar and commodity prices

“Currency analysis is complex,” says Neil Blue, provincial crops market analyst with the Alberta government. “Many influences on exchange rates can affect those rates on any given day. In commentary on the Canadian dollar, a move in the dollar is often related to a crude oil price change in the same direction. That is often a reason, but that correlation varies, and sometimes the correlation appears to be negative for a period rather than positive.”

Higher oil prices imply that the petroleum-industry sectors of the economy are strengthening, but higher oil prices usually mean higher fuel costs and therefore, higher transportation and other costs. Those higher costs have a dampening economic effect.

Image 1. Crude Oil (U.S. $) Futures vs. Canadian Dollar Futures

Many factors are involved in currency values. The Canadian dollar value is often negatively correlated to the value of the U.S. dollar, which trades as an index. The U.S. dollar index is comprised of a weighted group of other currencies of major U.S. trading partners, including Canada.

The Canadian dollar has traded between 76.50 and 80.50 cents U.S. for the past several months and lately has been on the rise.

“The effect on Canadian commodities of a stronger Canadian dollar is generally price negative, but not consistently so across all commodities,” explains Blue. “The effect by commodity depends on several factors, including the effect on prices of similar U.S. commodities from a weaker U.S. dollar and the proportions of each Canadian commodity used domestically or exported to various countries.”

Contact

For more information, connect with Neil Blue at 780-422-4053.

Sign up for Agri-News

Start every Monday with the week’s top agricultural stories and latest updates.

Join our email list

Read about all things agriculture at Alberta.ca/agri-news