Oil, gold, news, technical analysis: everything you need to work with CAD

Features of the fundamental analysis

The asset is affected by the complex influence of raw materials other than oil, such as coal, ferrous and non-ferrous metals, and also has a strong dependence on the US dollar and on large trading partners (Australia, Japan, China), therefore, economy.

At one time, the two major colonial powers played a significant role in the founding of Canada. And today, exclusively active cooperation in various fields of the economy with these and other countries, formerly part of the British and French empires, is the basis of the Canadian foreign policy. Any decline of bilateral relations with Great Britain or France immediately affects the stability of the Canadian dollar.

During economic uncertainty, external capital inflows have a strong effect on CAD. In periods of high prices for basic goods, investors are always actively investing in the Canadian dollar, so that any political instability in the region has a favorable effect on its rate.

Let’s look at the two main factors that must be taken into account when working with the Canadian dollar in detail.

Oil and oil products

Canada has large reserves of the traditional and huge deposits of the heavy oil (bitumen), so the production of the petroleum products from such complex raw materials requires high technologies, huge labor and energy resources.

The largest deposit of Athabasca was discovered back in 1778, but active development began only in the middle of the twentieth century. As a result of the introduction of innovative technologies (methods SAGD, VAPEX, CHOPS, N-Solv), Canada managed to create a unique industry for the extraction of oil from natural bitumen.

Currently, about the 40% of the reserves of conventional Canadian oil have already been produced (and in the provinces of Alberta and Saskatchewan − respectively 70% and 45%), but the proven reserves of bitumen (up to 2500 billion barrels) guarantee the stability of the oil industry.

The level at which the production of Canadian «sandy» oil will be minimally profitable, experts estimate at $25 per barrel, but the market price of basic benchmarks below $40-45 is already considered critical for Canadian raw materials.

Before the American shale revolution, about 70% of Canadian oil was exported to the United States. At the moment (Fall 2018), the volume of «domestic» exports have fallen sharply, and Canadian oil is mainly consumed by US chemical industry enterprises, especially sensitive to raw materials quality.

But there is a trading asset that stably depends on the dynamics of Canadian oil: cross-pair CAD/JPY − Japan remains a major importer of this raw material and there is no reason to change the trend yet.

More details on trading on correlations with the Canadian dollar − see below.

Trade on correlations

The Canadian dollar demonstrates perfectly the fact that any correlation is very relative, and, most importantly, a temporary phenomenon. The world economy is changing, old relationships no longer work, but new ones are constantly emerging.

Canada holds the world's top ten leaders in the extraction of industrial silver, gold, the group of non-ferrous metals (Al, Cu, Fe, Ni, U, Zn), but correlations of the CAD with market assets on this raw material are unstable. Trading interest is represented only by spot-assets for gold and silver.

Concerning silver, the situation is more stable, but the short-term correlation is very dependent on the demand of the Asian market for this raw material. It is necessary to track the results of trading on the stock and commodity exchanges of the Asian region.

Canada's interest in the state of the American economy reflects the relationship between the USD/CAD and the US stock indices, but for trade, this correlation is currently not suitable.

The strongest remains the correlation of the base pair with the prices for oil and oil products. Oil usually outperforms the pair USD/CADб and for Forex trades it is an indicator that shows the direction of entry. For example, the oil price increasing causes the fall of the pair USD/CAD.

At the moment, the correlation with the benchmark WTI is stronger, but the correlation with Brent mark can be also traced. The US dollar, unlike its northern counterpart, large players are buying up in any problem situations with oil.

Trade on the news

The base pair USD/CAD is actively responding to Canadian, and to American news, as well as to the signals of the commodity and stock market. The reaction has a clear direction, most often with spines, but without turns.

For example, bad news from the US and good news from Canada is a good reason to sell USD/CAD.

Several practical remarks

A high CAD rate is unprofitable for the domestic economy, but it is not yet possible to overcome this. Reducing the price of oil, industrial raw materials, and a strong USD are the three main problems for the Canadian dollar, but many factors can be beneficial for a trader at Forex.

The main condition for normal trading is a rigid money management – the connection with oil requires this. Almost all technical indicators on the Canadian dollar behave as standard, the price in the most situations is not speculative, and therefore there is an opportunity to benefit from both technical and fundamental analysis. Well, and to earn, of course.