Monday, December 8, 2008

the loonie, a petro-currency

If you ever doubted the fact that the Canadian Dollar is a petro-currency; that is it's value is highly correlated to the value of petroleum, have a look at these two charts.

The chart on top is value of the Canadian Dollar versus the US Dollar. Note how the value stayed in the $0.96 USD to $1.02 USD range until August. Then in September the Loonie fell off a cliff as it plunged from $0.96 to a $0.77-$0.80 range. No more cross boarder shopping, and my US stock holdings essentially all increased their dividends and didn't fall as much as they truly did in the market.

Now look at the chart on the bottom showing the value of oil through the US Oil Fund ETF which tracks the price of the black stuff. The exact same pattern is evident, a July/August drop preceded a September plunge. One of my vehicles now costs $20 to fill up and the other costs $30.


DoubleOurMoney said...

You might also add that the recent moves of the Canadian stock market is highly correlated to the price of oil.

Monty Loree said...

Interesting point.. I'll have to study that some more. The stock market tsx has gone down at the same time.. so.. that could be another contributing factor.. less demand for the Canadian dollar.

MG (moneygardener) said...

The Dow Jones has gone down to the same extent as the TSX so it would be a wash. The major change has been:

1. Price of oil and other commodities
2. Flight to safety in U.S. treasuries.

sampson said...

$20 to fill up? Do they make vehicles with 25-30L gas tanks? Or do you fill up after using only 75% of the tank?

Good bet on the US equities though. I'm in the same boat. It was a little tough buying them when the USD was falling, but its decline was so dramatic somehow I knew it had to recover.

Cross border shopping is still possible (since we get paid dividends in USD ;))

MG (moneygardener) said...


Toyota Yaris 42L tank x 20% full = 33.6L needed x $0.70/L is $23.52. Ok, not $20 but close...

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Patrick said...

Wow, that's some serious pseudo-science you've got there. Here are some more charts that correlate with yours:

The Dow Jones

The S&M 500

The temperature in Toronto

MG (moneygardener) said...

Patrick, Good point, everything has been going down lately. Maybe I'll follow up on these chart in a year or so and compare with indices, but not temperatures :)

Anonymous said...

The TSX has more energy stocks than any exchange in the world. The major oil sands developers have shed about 2/3 of their value since the wheels started coming off the mad money wagon. We are an energy and mining economy, and those businesses have fallen off a cliff (and as a tree-hugging earth-lover, let me say Thank Jeebus for that). There is no science required here, pseudo or otherwise; the writing is on the wall.