Readers Question What are your predictions for us/Canadian dollar currency. Do you think they will reach par in 2009 ?
Recently the Canadian dollar has been weak against the US dollar. This is because of the plunge in commodity prices which depress Canadian export revenues and decrease value of Canadian Dollar.
Despite many problems in the US economy, the dollar has remained relatively strong, with markets taking the attitude – better the devil you know. (i.e. markets are feeling the US Dollar offers reasonably security compared to other countries – despite the US policy of quantitative easing and large national debt.)
source: Economist
Factors affecting Canadian Dollar in future months
The world economy may recover slowly which will help commodity prices increase, but, it is unlikely to be anything other than weak recovery.
The Canadian dollar is facing a similar rate of slowdown to the US economy. However, a stronger recovery is forecast for Canada. This could mean in 2010, Canada faces higher interest rates which attract hot money flows for Canadian dollar. This would increase value of Canadian dollar.
The dollar’s recent strength arguably rests on shaky foundations. With the impact of 0% interest rates, rising levels of national debt and quantitive easing, markets may feel the US dollar is overvalued and this could cause the Canadian dollar to rise compared to the US.
However, there are so many factors affecting exchange rates at the moment, it is difficult to make any predictions. However, on balance I’d rather be buying Canadian dollars than US dollars.
(Disclaimer: Do not take this as investment advice)