Last Dance of the Loonie and WTI? The correlation between WTI and Canadian Dollar seems to be breaking down, at least in the short term. Not sure the reasons for this, but posting to hear thoughts. For those unfamiliar with the WTI/CAD correlation, I have added some context.
The Correlation: How Are They Connected?
Commodity-Driven Economy : Canada is known for its abundant natural resources, including oil. The Canadian economy is heavily reliant on its energy sector, which includes the production and export of oil. When WTI crude oil prices rise, Canadian oil exports become more valuable, leading to an influx of foreign capital into Canada. This increased demand for the Canadian dollar can result in its appreciation against other currencies.
Economic Health : The Canadian economy's overall health is closely tied to the energy sector's performance. When WTI prices surge, it often indicates increased economic activity, which can benefit Canada's economy and, consequently, the loonie. Conversely, when oil prices plummet, it can have a negative impact on the Canadian economy and lead to a weaker Canadian dollar.
Risk Appetite : Like many commodity currencies, the Canadian dollar tends to strengthen during periods of risk appetite. When global economic conditions are stable, investors often flock to assets like oil, which can lead to higher oil prices and, in turn, boost the loonie.
