Settlement of Oil Futures

The trading anomaly in USD/CAD stems from the fact that Canada is one of the world’s largest oil producers.  Their oil reserves are also second to only Saudi Arabia.  Canada is also the top exporter of oil and other petroleum products to the United States, making the US dollar-Canadian dollar exchange rate especially correlated to energy prices and related money flows.

Therefore it is not surprising that the movement of the Canadian dollar is especially sensitive to end-of-month oil contract settlement. It is fairly easy to determine when firms are required to settle outstanding oil contracts and potentially convert US dollars for loonies on a monthly basis. More specifically, it is well-known that oil futures settle in the final week of every month.

Looking at the table below, we see that a 10-year sample of data shows the biggest appreciation in the Canadian dollar against the US dollar happening in the final week of every month.  In other words, on average, USDCAD falls 6 points per day in the final week—a result statistically below 0,at a 95% confidence level.  Six points is hardly worth getting overly excited about since it is difficult to take advantage of such a small price move on a vague, weekly basis.  However when we take a much more granular look of the USDCAD’s behavior around specific days of the month, the moves become more substantial. 

CAD Nymex 08-23-2007a

The chart below shows that the Canadian dollar tends to appreciate the most on the 24th and 25th day of every month, with continued gains into the early days of the month that follows. This dynamic is exactly consistent with settlement on oil futures contracts, as the “notice day”—the first day on which the purchaser may be called upon to take delivery—is typically between the 22nd and the 24th calendar day.

CAD Nymex 08-23-2007b

Taking a look at the NYMEX crude oil schedule through 2007, we see an interesting connection between the USDCAD and delivery dates.

CAD Nymex 08-23-2007c

Namely, it seems as though the Canadian dollar moves the most following the Notice Day, while the First Delivery Day likewise causes some strong moves in following month. Given that the Notice Day occurs today, August 23rd, it is especially interesting to note that the Canadian dollar has appreciated strongly against yesterday’s close.

The chart below shows USDCAD movements through Notice Days from December 2006 to present.

CAD Nymex 08-23-2007d

The statistical relationship showed signs of waning through the early months of the year, but it has clearly picked up from June through August. Given such a relationship, it seems clear that the USDCAD stands to continue declines through the short-term—leaving Loonie appreciation probable in upcoming days of trade.


Written by David Rodriguez, Currency Analyst of