The price of oil is one of the most important variables in the global economy. Traders and investors in capital markets, credit markets, commodity markets, and to a certain extent, forex markets, all incorporate oil prices into their models and strategies. Specifically, as the price of oil has soared, the currencies of resource-rich economies have predictably risen in tandem. The reasoning behind such a trend is as follows: when the price of oil rises, the total value of oil exports rises proportionately. In order to purchase oil from Canadian and Norwegian sources, (whose currencies are thriving), one must first exchange domestic currency for Canadian or Norwegian Currency, which creates demand for those currencies and their exchange rates to appreciate. The Wall Street Journal reports:
Indeed, the close tracking of oil prices and the Canadian dollar has been among the only predictable trends in currency markets in recent weeks as most other major currencies have drifted within ranges, moved more by positioning and technical trading than any fundamental story.
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