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Predictive Ability of Commodity Prices for the Canadian Dollar

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  • Kimberly Berg
  • Pierre Guérin
  • Yuko Imura

Abstract

Recent sharp declines in commodity prices and the simultaneous depreciation of the Canadian dollar (CAD) relative to the U.S. dollar (USD) have rekindled an interest in the relationship between commodity prices and the CAD-USD exchange rate. In this note, we evaluate the individual predictive ability in terms of point forecasts and directional accuracy of energy and non-energy commodity prices, the Canada-U.S. interest rate differential, and the USD multilateral factor – which captures co-movements of major currencies relative to the USD – in explaining movements in the nominal CAD-USD exchange rate at the daily, monthly and quarterly frequencies. We not only confirm that both energy and non-energy commodity prices are each individually helpful in explaining contemporaneous movements in the nominal CAD-USD exchange rate, but also find that the USD multilateral factor has a stronger predictive ability.

Suggested Citation

  • Kimberly Berg & Pierre Guérin & Yuko Imura, 2016. "Predictive Ability of Commodity Prices for the Canadian Dollar," Staff Analytical Notes 16-2, Bank of Canada.
    • Handle: RePEc:bca:bocsan:16-2
    DOI: 10.34989/san-2016-2
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    References listed on IDEAS

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    Cited by:

    1. Michael B. Devereux & Gregor W. Smith, 2018. "Commodity Currencies and Monetary Policy," NBER Working Papers 25076, National Bureau of Economic Research, Inc.
    2. Branko Bošković & Andrew Leach, 2020. "Leave it in the ground? Oil sands development under carbon pricing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 526-562, May.

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