Training on how the oil price can affect forex dealing part 2
The experts are undecided on how far oil prices will rise. Not that long ago people thought $40 a barrel was the upper limit. This year of course prices have risen to over $70 although they fallen back again recently. Some people are now predicting it won’t be that long before prices reach over $100 a barrel. What affect will these oil prices have on the forex market ?
In the forex market, exchange rates are often predicated on the strength of a country’s economy. If the economy is healthy and growing, the exchange rates for their currency reflect that in higher value. If the economy is struggling, the exchange rate for their currency against most other currencies may fall.
If you accept that information as correct you could reasonably say that the currency of countries that produce and export oil will rise in value. In addition the currency of countries that import most of their oil and depend on it for their exports will drop in relative value and the most profitable trades will involve a country that exports oil vs. a country that depends on oil.
Based on those assumptions a lot of traders are keeping their eye on the Canada and Japan pairing for the most profitable trades and this is the reason why.
Canada is rising on the list of the world’s oil producers,and is currently the ninth largest exporter of oil worldwide. Since the year 2000, Canada has been the largest supplier of oil to the U.S.,and has been getting considerable attention from the Chinese market. It’s predicted that by 2010, China’s import needs for oil will double, and match that of the U.S. by 2030. It appears that Canada is set to be the largest exporter of oil to China. This puts Canada’s dollar in an excellent position from a trading perspective.
Japan, on the other hand, imports 99% of its oil. Their reliance on oil imports makes their economy especially sensitive to oil price fluctuations. If oil prices continue to rise, the price of Japanese exports will be forced to rise as well, weakening their position in the world market. Over the past year, there has been a close correlation with rises in oil prices and drops in the value of the yen.