What’s new on the Canadian Foreign Exchange Market?
The US dollar (USD) is the most traded currency in the world, with an 87.3% share of all daily transactions. It’s easy to forget that just north of the USA is another currency with strength in its own right. The Canadian dollar (CAD) is the seventh most traded currency in the world, and holds its own against other big currencies. Anyone involved in currency trading should give the Canadian dollar a look, as it is a significant player in the market.
The Canadian economy
The Canadian economy, on the other hand, is not ranked as highly as the currency. It is number 10 in the world, and low on the list of major economies due to its small population. But, the central Bank of Canada does not intervene in the currency, unlike most other central banks. This in spite of the importance of foreign trade which can be compromised by too strong a CAD. This absence of government intervention makes it a particularly interesting currency.
The economy itself has seen strong growth for the past two decades, although it too went through recession in 2009. An important factor in Canada’s economy is the wealth of resources, including petroleum, minerals, wood products, and grains. These commodities are enough to draw scrutiny, and the Canadian dollar value is significant for international trade.
The Canadian dollar
The Canadian dollar is strongly connected to the US economy, due to their tight trading relationship. Economic events in the US impact the Canadian dollar, and vice versa. The strength or weakness of the USD is therefore a factor in the growth of the CAD. As with many other currencies, the CAD has appreciated in response to the USD’s continued weakness.
Other factors that impact the CAD include major economic data such as GDP, retail sales, industrial production, inflation, and trade balances.
Influencing the current rise of the CAD are diminished chances of a Canadian rate cut, and a Bank of Canada that has not objected to the strength of the Canadian dollar. Rising oil prices also significantly buoy the CAD, oil being an important national commodity.
Regarding those commodities, the performance of the Canadian dollar largely correlates to commodity prices. Oil is the most significant, but minerals and wood products also comprise a crucial part of Canada’s trade.
Canada’s economic health
Canada has suffered recessions in 2009 and the early 1990s, but both were relatively brief, and Canada maintains a healthy economy. This has led to high interest rates, which keep investors pouring in. Canada also maintains a good balance of regulation, with qualms of overregulation uncommon. During periods of global economic uncertainty, that becomes relevant.
Since the US and Canada are so strongly linked, the CAD is somewhat tied to the health of the US economy. That does not mean that the CAD’s strength is dictated by US economic strength, but major economic events in the US will impact the CAD, one way or another.
The Canadian dollar in 2016
So far, the Canadian dollar has been flying high in 2016. It is gaining ground on the USD, and looks unlikely to abate just yet.
Predicting the rest of 2016 is impossible, but the Canadian dollar is certainly one to watch for anyone involved in currency trading.