The Canadian dollar is very sensitive to changes in oil prices. As you can see from this example, there exists such a strong correlation between the Crude Oil, and the Canadian dollar. These are the reasons behind such strong correlation.
Canada’s economy is largely dependent on the oil it produces. Crude petroleum contributes to 14% of Canada’s total exports. So, 98% of the quantity that it produces is exported to the US.
The US produces the WTI Crude Oil which is of much better quality and higher price. Canada produces the Western Canadian Select or Canada Crude Oil, which is not so highly prices compared to the WTI Crude Oil.
Look at this example. The WTI is trading at $21 a barrel. The Canada Crude is trading at $4.50, which means more transportation costs to ship that oil. So, when there are big fluctuations in oil prices, you can see big reaction in the value of the Canadian dollar. So, drop in the value of the oil prices affects the Canadian economy than the US economy.
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