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

How to read the Canadian Economy

Unemployment Rate

As is the case with all major currencies as also the US Dollar, the Unemployment rate is one of the most important indicators of the Canadian Economy. Particularly, this reflects on the earning & purchasing power of the people, which impacts the domestic economy. It also throws light on the state of the Industry in Canada as a healthy industrial climate is bound to create increased job opportunities. A low rate of unemployment would drive up the positive sentiments & consequently appreciate the CAD$.
The Consumer Price Index

The state of Inflation in the Canadian Economy can be known through the Consumer Price Index, (CPI). As has been shown under the section on The Bank of Canada, any inflationary tendencies outside the 1-3% band, would invite countermeasures from the Bank like hardening or softening of the interest rates, which in turn is bound to influence the exchange rate of the Canadian Dollar.

The Producer Price Index

The Producer Price Index (PPI) reflects the changes in the prices of goods received by its Canadian producers for industries ranging from Manufacturing to Agriculture. The Seasonally adjusted PPI is of particular interest to Foreign exchange traders as it gives an indication of the positive or negative sentiment in the Canadian industry. It can influence the rate of return on investments in those sectors and subsequently encourage or discourage investments into the Canadian economy. Increasing investments would trigger a renewed demand for the Canadian Dollar.

The Gross Domestic Product

As in the case of any other economy, the Gross Domestic Product (GDP) is one of the most important indicators of the state of its health. GDP indicates the net production and consumption of goods and services. Special care is taken to prevent any duplication of values when the total good & services in the Canadian economy are accounted. One can be optimistic about the future of the Canadian economy (and the CAD$) if a robust positive growth is observed in GDP growth.

Balance of Trade

This indicates the amount of Trade deficit or Trade Surplus - i.e. the difference between the net Exports and Imports into Canada. Trade deficit occurs when imports outnumber the exports, while Trade Surplus signifies that Exports exceed imports. A higher Trade deficit would significantly weaken the CAD$, particularly if it is caused due to a decrease in exports to the US. Trade Surplus & Trade Deficit are likely to appreciate or depreciate the Canadian Dollar respectively, as it culminates in its increased demand or otherwise.

Domestic Household Consumption

Data on the Consumption by Household & Producers of non-profit services to households is collected on a national scale inside Canada. Excluding Real Estate purchase & other such forms of capital investment, all other forms of consumption are recorded in this data. Any increase seen in Household consumption is seen as a positive development and considered healthy for the economic growth, as it indicates an increase in earnings, and positive purchasing power. Increased spending by domestic consumers will aid to the contribution of Exports towards the appreciation of the Canadian Dollar, while a decrease in the consumption would have an adverse impact on its international standing.

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