Close ties of the Canadian dollar with the oil business makes CAD a favorite for traders who play on oil prices. And traders do not make a mistake in their affections: a historical correlation between the Canadian dollar and crude oil is too "personal", to say the least. "Canadian" is the epitome of the classic term "commodity currencies" and a perfect example of the correlation between the exchange rate and commodity prices.

It is commonly thought that if oil becomes more expensive, the Canadian dollar strengthens position, particularly against the US currency. Similarly, traders tend to buy USD, when oil prices are unstable. This is what happens in the last few months due to the fall in world oil prices.

Currently, this strategy does not work in 100% of cases, like any other. However, its effectiveness is high enough to be extremely profitable for traders. Now let’s consider in details the oil prices and their impact on the Canadian dollar.

Canada managed to maintain the role of the leading oil exporter due to the great appetite of one of the regular customers, which is in close proximity to the Canadian border. We are talking about the United States. And although the level of domestic consumption fluctuates, the demand on the part of the Americans, in general, historically constantly increasing.

Another advantage for Canadian oil is the proximity of the primary consumer, because the delivery of oil to the neighboring country is not associated with excessive transport costs. This, in turn, saves money for the Canadian economy as a whole.

Of course, this is not true for the delivery of oil to Japan. However, the Japanese market is still profitable for Canadian suppliers. The presence of two political and economic stable consumers is definitely a big plus. And this does not in any way harm the CAD, because Japan and the United States are two of the largest economies in the world, and their national currencies included in the list of the 8 most popular currencies among traders.

If you look at the comparative chart of crude oil prices and the Canadian dollar, it will be seen more like a movement of professional dancers. In this couple oil "leads" and its partner CAD usually goes after her. This occurs at least in 80% of cases. Therefore, it is the price of oil is a leading indicator, which may suggest to a visionary investor what position, long or short, should be opened with the Canadian dollar.

Besides the usual Forex technical analysis, you can use data from Exchange-Traded Funds (ETFs). Some of them, for example, Currency Shares Canadian Dollar Trust, track the daily change rate of CAD.

Another option could be following the iShares MSCI Canada Index. This tool tracks the basket of leading stocks that are traded on the largest in Canada the Toronto Stock Exchange. Here, investors should pay attention to the fact that the index does not affect only the oil companies but also touches a number of Canadian companies from different fields of activity.

For those who prefer direct equity investments, you can pay attention to the stocks of Suncor Energy. It is the largest Canadian oil company with a dominant presence in the oil sands in the west of the country. Shares of the company, of course, will go up with the growth of oil demand.