One of many not-too-surprising correlations within the monetary markets is proven on this week’s chart. There’s a robust constructive correlation between the greenback value of crude oil and the Canadian dollar-to-US greenback alternate price. The connection is no surprise, as Canada is a significant oil-producing nation, and so, as goes the value of oil, so go the fortune’s of Canada’s foreign money.
However as we see on this week’s chart, whereas there’s often a really robust constructive correlation, the 2 don’t all the time agree. The enjoyable level about that is that after they disagree, it’s often the Canadian greenback that finally ends up being “proper” about the place each are headed. That’s related proper now as a result of crude oil has rallied since early July from within the $60s to now above $90/barrel, however the Canadian greenback is making a divergent decrease excessive.
I’ve highlighted a number of different such divergences, moments when the 2 plots disagreed about which approach to go. In every of those disagreements, one would have been higher off listening to the message of the Canadian greenback than listening to the value route of crude oil.
If that tendency continues, then we must always count on at the very least a small stumble for crude oil costs simply forward, because the oil market realizes it has zigged when its accomplice zagged, and crude oil works to make up for that overstep. Then once more, now that I’ve identified this tendency, this may very well be the one time that the rule doesn’t work, simply because I shared it.