Overview, Knowing the Canadian Dollar, How to read the Canadian Economy

Knowing the Canadian Dollar

Dependence on Commodities

As was indicated earlier, Canada is primarily a 'Resource-based' economy. One of the strongest influencing factors for the CAD$ is the prices of commodities. Any rise or fall of commodity prices in the global market is likely to strengthen or weaken the Canadian Dollar likewise with a probability of around 62%.

Influence of the US Economy

The United States accounts for the largest Exports - with a lion's share of about 85% of the total exports from Canada. That shows how important the US economy is to Canada. Fortunes of the Canadian economy swing very close to that of the US. Any slowdown in the US economy is bound to impact the Canadian economy in a negative manner with a fall in the exports and vice-versa.

Effect of Globalization

In context of the phenomena of Globalization, companies over the world try to expand their business interests overseas. Takeovers & Mergers of companies worldwide are increasingly becoming common. With fairly good oil reserves, Canada prompted interest in several US companies, which resulted in Mergers & Takeovers of Oil companies inside Canada. This obviously impacts the value of the Canadian Dollar positively, as its demand increases to facilitate the huge payments involved in the deals. Consequently it is bound to have an effect on the USD/CAD exchange rates.

Interest Rates of other Major currencies & 'Carry Trade'

Worldwide currency movements strongly depend on the rate of returns offered by the currency under consideration. Opportunities for increasing their returns would drive the global investors to park their funds elsewhere. The difference in the rate of interest offered by the CAD$ and other major currencies influences the demand for the Canadian dollar. If this results in an increased demand for the CAD$, it is bound to appreciate vis-a-vis other currencies. Selling currencies offering low rate of returns to buy currencies with higher interest rates is called 'Carry Trade'. The Canadian Dollar is considered favourably with regard to Carry Trade; but any reduction in the interest rates offered by the CAD$ can have a negative impact on it.

Overview, Knowing the Canadian Dollar, How to read the Canadian Economy