Factors Affecting USD/CAD: And Why Oil Plays The Major Role?

Factors Affecting USD/CAD: And Why Oil Plays The Major Role?

As we all know, the U.S.A. and Canada share one of the largest trading relationships. Both nations have been the center of booming economies, attracting immigrants from every corner of the world.

However, have you ever wondered, despite mirroring each other, why USD and CAD are on different levels? Why USD remains a tad bit stronger, with almost 1USD=1.37 CAD in October 2022? Like any exchange rate, the USD to CAD is affected by some crucial factors.

For starters, CAD is impacted mainly by oil prices. So, let’s dig right into the major factors affecting USD/CAD conversion rates and the correlation of oil with the loonie.

3 Major factors affecting USD/CAD Crude oil inventory Canada remains the greatest foreign supplier of crude oil to the U.S. In 2020, 61% of all U.S. crude oil imports came from Canada. Lower oil prices are often the result of a higher gasoline supply, resulting in a decline in the CAD. In addition, as America raises its oil production, it will further drive down oil prices. In 2017, Canada already suffered from a sharp decline in oil prices, negatively impacting the loonie.

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Natural gas inventory in the U.S.

Similar to crude oil, natural gas remains a widely traded community between the countries. The U.S. releases weekly reports of the change in the natural gas available in its underground inventory.

When the natural gas storage in the U.S. is high, it cuts down the demand, resulting in falling oil prices.

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Political stability

The political stability of a country widely affects its currency. For example, Trump’s Anti-trade stance stressed major traders, including

Canada. However, with the change of political party, CAD and other currencies expect a better trade policy.

Correlation of oil with CAD You must have heard people referring to crude oil as “black gold”. It is true because crude oil is the most traded commodity in the world, running through the veins of the global economy. Canada is among the top oil producers in the world, exporting millions of barrels daily to the U.S. Moreover, it’s important to note that most of Canada’s economy depends on exports! Thus, the logic is simple, if the U.S.’s demand for oil increases, Canada would need to manufacture more, increasing the oil prices. As a result, the CAD value would go up. On the contrary, if the demand for crude oil in the U.S. drops, it would negatively impact Canada’s export. As a result, one can see a downfall in the value when you convert USD to CAD. Conclusion As discussed above, several factors affect USD/CAD, with oil being a major one. Thus, one must understand every little nuance before starting a trade or changing currency. Thankfully, some platforms provide the best exchange rates in Canada. Interchange Financial is a reliable website that offers seamless currency exchange and money transfer services. Whether you need to send money to the U.K. or see the live CAD forecast, you can trust them any day. For more details about their services and policies, visit their website now!

www.interchangefinancial.com/usd-to-cad/