Written by Attain Alternative Blog
Our neighbors to the north are facing a harsh reality these days… the ongoing devaluation of the Canadian Dollar, or better known as the Loonie. While it’s hard to take the Loonie seriously given its loonie name, it’s a major concern for Canadians and their economy. Despite rebounding around 10% from its 2016 lows, the Loonie is still down around 25% from its high 2011 highs.
(Disclaimer: Past Performance is not necessarily indicative of futures results) Chart Courtesy: Barchart
If you’re familiar with the makeup of the Canadian economy, many are blaming this downward move on crude oil’s recent drawdown, the largest drawdown in history. Just take a look at the 30 day rolling correlation of Crude Oil to the Loonie starting in 2014.
(Disclaimer: Past performance is not necessarily indicative of future results)
The correlation currently stands at 0.69 but was as high as 0.72 back in January. This week, the Royal Bank of Canada reported that crude oils implosion is the biggest contributing factor to the fall in the Canadian Dollar.
“Three Quarters: Proportion of the fall in the Canadian dollar’s exchange rate attributable to the decline in energy prices, according to Royal Bank.”
$25 billion: Cost of the plunge in oil prices to Canada’s economy.”
This makes sense when you consider that “mining, quarrying, and oil and gas extraction” made up 6.91% of Canada’s total GDP in 2015, and 23% of the goods-producing industry. To understand that number, we need to understand the way Canada produces oil. The majority of that mining or extracting is not for oil itself, but extracting a mixture known as oil sands.
What are Oil Sands?
Surprising enough, oil sands isn’t actually oil, but can be turned into oil. Oil Sands is an actual physical mixture of sand, water, clay and bitumen found primarily in Venezuela, The United States, Russia, and Canada. We can’t do the explanation justice, so we’ll let this quick 30-second video do the trick.
