Forex vs. Oil

Forex vs. Oil
The movement of currencies is influenced by various factors: supply and demand, interest rates, economic growth and many others. Specifically, economic growth and exports is directly related to the domestic production of the country, it is natural that some currencies are closely linked to commodity prices. The currencies that have the tightest correlations with commodities are the Australian Dollar (AUD) Canadian Dollar (CAD) and the New Zealand Dollar (NZD). Other currencies are correlated, such as the Swiss Franc or the Yen but the correlation is lower.
There are many reasons behind the fall in oil prices, including a stronger dollar (since oil is priced in dollars) and a decline in global demand. As a major oil exporter, Canada has been hit hard by the decline in oil prices, while Japan (general importer) he benefits.
During the years 2006 to 2009, the correlation between the Canadian dollar and the price of oil was approximately 80%. On one day this correlation may stop but in the long run, their changes are correlated. Canada is the 7th largest oil producer in the world and continue to grow in the list thanks to large reserves that were discovered. These reserves have also been reported recently exploited, which caught the attention of many importing countries such as China. In 2000, Canada has also surpassed Saudi Arabia and the United States as an oil producer. Oil reserves in Canada are the second largest after Saudi Arabia. Canada's proximity with the United States also plays an important role, the United States can not meet all their needs with domestic production only.All these factors make it extremely sensitive to changes in Canada's oil prices.
The chart below clearly shows the positive correlation between the Canadian Dollar and oil. Oil is one of the determinants of the evolution of parity. The graph shows the evolution of oil prices and parity between May 2007 and May 2009. This shows that when the price of oil rises, the CAD appreciates.
On the other hand, Japan imports nearly all its oil they consume (compared to the United States, which imports about 50%). Before 2009, Japan was the 3rd largest oil importer behind the United States and China. Japan has a lack of natural resources and needs major oil makes it very sensitive to changes in oil prices. Moreover, oil supplies to this country 49% of energy needs and so when the price takes off, the Japanese economy suffers.