These two forex pairs are reaping benefits of the oil rally

The Norwegian krone and the Canadian dollar have been the best performers among G-10 currencies in recent weeks, thanks to their strong correlation with oil prices.

When viewed against the Japanese yen – traditionally one of the currencies most affected by higher oil prices – NOK/JPY and CAD/JPY have risen 5.6% and 5.1% respectively over the past month.

The Noki and the Loonie have also outperformed all other major currencies since the beginning of the year and their relative strength may not yet be near its end, given analysts’ bullish short-term forecasts on oil prices.

Bank of America brought forward the $100/bbl call as early as this winter amid elevated demand pressure in the northern hemisphere, while Goldman raised its forecast to $90/bbl by year-end, as we recently discussed here

Image of FX performanceYTD performance of major FX crosses – Credit: Koyfin


Why CAD/JPY and NOK/JPY are strongly correlated with oil prices

International trade figures, such as trade deficits and surpluses, are an important driver shaping forex markets. While Norway and Canada are among the leading net exporters of fuels in the world, the Japanese economy is highly dependent on energy imports. 

According to EIA statistics, Japan’s domestic energy consumption is nearly seven times higher than domestic production. For this reason, Japan ranks as the fourth largest importer of crude oil and the largest importer of liquefied natural gas (LNG) in the world.

On the other hand, Canada is the world’s fourth-largest petroleum and other liquids producer, as well as the third country in terms of proved oil reserves, while about 40% of Norway’s export revenues come from the petroleum and natural gas sector, which also contributes for around 15% of the country’s GDP.

Image of net exporters and importers of mineral fuelsTop 10 net exporters and net importers of mineral fuels (2019) – Data: OEC

The correlation between NOK/JPY and CAD/JPY with Brent crude has historically been strong, as shown below. When oil prices rise, so does the value of the Canadian dollar and the Norwegian krone against the Japanese yen, and vice versa.

Image of NOK and CAD versus JPY and Oil PricesCorrelation between NOK/JPY, CAD/JPY and Brent – Credit: Koyfin

A more hawkish monetary stance supported NOK and CAD  

Soaring energy prices were not the only reason why the Loonie and the Noki have strengthened in recent months, as monetary policy divergences have started to emerge among G-10 central banks, and forex investors are beginning to see them as a differentiating factor. 

Norges Bank and Bank of Canada are certainly on a different policy path than the Bank of Japan (BoJ), which still remains marked by an ultra-dovish stance. In the last September meeting, Norges Bank raised its benchmark interest rate to 0.25% for the first time post-Covid, signalling 4 more hikes to 1.25% by the end of 2022.

Despite interest rates remaining unchanged at the bank of Canada’s last meeting, a tapering of its $2 billion a week purchase program is already on the board’s mind, with the possibility of seeing the first hike in mid-2022.

These monetary policy developments still seem to be a long way off for the BoJ, which is still grappling with negative interest rates.

The bond market is a reliable thermometer of monetary policy divergences between central banks, as can be seen from the spread between the Norwegian and Japanese 10-year yield, which has returned to its highest level since 2019.

Chart of Norway-Japan 10-year spread versus the exchange rate10-year Norway-Japan spread vs NOK/JPY – Credit: Tradingview


NOK/JPY Technical analysis

The Norwegian krone is currently hovering around 13.64 against the Japanese Yen, up 25% from the 52-week lows.

The 50-day moving average has just crossed above the 200-day moving average, forming the so-called “golden cross” – a technical pattern indicating a bullish trend.

The 14-day RSI [relative strength index] – a momentum indicator which tracks the speed of recent price movements – stands at 71 and has been floating into the overbought area since October 11.

The greatest multi-year resistance stands at the psychological level of 14.00, which corresponds to the highs of October ’18. A break of this level could increase the possibility of a movement towards the next resistance level, in the 14.30-14.40 area, around the highs of September 2017.

Profit-taking behaviours or an abrupt return of the risk-off sentiment could test the first line of support at 13.30.

Image of NOK/JPY Technical AnalysisNOK/JPY Technical Analysis – Credit: Koyfin


CAD/JPY Technical Analysis

The Canadian dollar is trading at 92.00 against the Japanese yen, on the back of a strong bullish trend since April 2020 lows.

Prices are above 5% from the 50-day moving average and 18% from 52-week lows. The 50-day moving average has recently seen a new rise and has been above the 200-day average for more than a year.

The 14-day RSI recently exited the overbought territory, which had been maintained since the second week of October.

CAD/JPY broke two major resistance levels at 91.13 (June 2021 highs) and 91.64 (September 2017 highs) and could look at the 93.15-93.25 area as the next resistance level, which corresponds to November 2015 highs.

The first line of support is at 91.12 and a break of this level could raise the possibility to bring the pair to test the 50-day moving average levels.

Image of CAD/JPY Technical AnalysisCAD/JPY Technical Analysis – Credit: Koyfin


Trader sentiment on NOK/JPY and CAD/JPY

According to the latest data from, trader sentiment is bullish on NOK/JPY, with 100% of buyers, but bearish on CAD/JPY, with 72% of sellers.

Among G-10 currencies, sentiment is slightly net long on EUR/JPY, with 53% of buyers, while traders are positioned net short on other crosses against the JPY.

Image of Major Currencies Trader SentimentTrader sentiment on CCY/JPY – Data:

The difference between stocks and CFDs

The main difference between CFD trading and stock trading is that you don’t own the underlying stock when you trade on an individual stock CFD.

With CFDs, you never actually buy or sell the underlying asset that you’ve chosen to trade. You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional stock trading, you enter a contract to exchange the legal ownership of the individual shares for money, and you own this equity.

CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional stock trading, you buy the shares for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks.

CFDs attract overnight costs to hold the trades, (unless you use 1-1 leverage)

which makes them more suited to short-term trading opportunities. Stocks are more normally bought and held for longer. You might also pay a stockbroker commission or fees when buying and selling stocks.


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