Will Canadian Dollar (CAD) Continue to Fall Versus United States Dollar (USD)?
Published on: 08/15/18 11:15 AM
Category: Uncategorised
For years, Americans expected the United States Dollar (USD) to be higher than the Canadian Dollar (CAD). And it remained so until 2011, when the CAD became more valuable than the USD. If the new administration makes “America Great Again” will that spell the continued decline of the CAD versus the USD?
CAD Characteristics
The CAD has always been an interesting asset for Forex traders. The Canadians share the same currency as their southern neighbor, America. Therefore, some Forex traders might trade the USD and CAD at the same time.
The energy, financial and transportation industries of the nations overlap. Canada is a very large country with a lot natural resources.
Therefore, Forex traders could hedge some of their USD bets using the CAD. The CAD was more dependent on natural resources, like lumber and oil. Many wondered if the Canadian petroleum sector would suffer due the falling price in crude oil.
Canada is very quiet on the global, geo-political scene, but it has the third largest oil reserves in the world and is the fourth largest oil exporter. The Canada energy industry is very powerful. Experts can watch its movements to get a clearer picture of global supply and demand.
Why the CAD Became More Valuable Than the USD
Between 2009 and 2013, the CAD was more valuable than the USD, reaching a historical high of 0.94397 USD/CAD on July 27, 2011. This seemed to be more a factor of America’s financial collapse, not Canadian growth.
Gradually, the USD gained value against the CAD from 2014 to 2018. How would a new US administration impact the USD/CAD?
The Canadian government has attempted to promote its Loonie as a completely independent currency. The country has even issued plastic money and outlawed pennies, which is a step ahead of the American currency system. Nevertheless, the USD has increased in value against the CAD until the first week of August 2018.
Only “one currency held up against the U.S. Dollar’s renewed strength: the Canadian Dollar.” Could the CAD be a good counter-USD play?
CAD Falling Versus USD
Experts have noted that open interest in “CAD futures dropped 12% in the past month, even as CAD rallied 3.2% off its lows.” Therefore, some might have seen this as a bet that the CAD would have a “dead cat bounce.” One trend line for USD/CAD provides technical support for a move higher.
One key Canadian advantage is a conservative housing market. The Canadian central bank has more room to raise interest rates than the American central bank. Monetary room to maneuver is a powerful advantage.