Opportunity: Oil & CAD Convergence Coming?

Traditionally Oil and the Canadian Dollar (“CAD”, or Loonie) have held a strong correlation. To a trader the causation aspect is not of particular interest. In the last few weeks Oil and the Canadian Dollar have diverged significantly. No matter if there is a change in the longer term trend for one or the other, in the next week to two weeks, we would expect to see the gap seen at the right hand side of the below chart converge.

The trade idea is then to go long Oil and short CAD. This way you are mitigating risk of a change in the longer-term trends, and relying on the expected convergence of the price trajectories.

OilCAD

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