The effect of oil price on the exchange rate of the Canadian dollar

Abstract

The purpose of this paper is to analyse the relationship between the WTI spot oil price and exchange rates. The data used covers from January 1991 to August 2012 with monthly data. The study used exchange rates for the U.S. and Canada, spot oil prices, interest rate differential, CPI differential, export-trading ratio as variables to build the regression model. The methodology in this study includes generalized linear model and Augmented Dickey-Fuller (ADF) tests. The findings show that the coefficients between oil price and exchange rate are very different in over time. The results indicated that the relationship between oil price and exchange rate is tighter in the 2000's because of increasing oil exploitation in Canada. However, the coefficients in different time periods are less statistically significant.