More readers are asking about the recent strength of the US Dollar. This time a readers ask why the US Dollar is strong against the Canadian Dollar.
On paper, the US banking system looks to be more fragile. The US government have had to pledge billions of dollars to support the US banking system, and yet, it is the Canadian Dollar which is falling.
- At the start of June 1 Canadian Dollar = 1 US $
- Today October 22nd 1 Canadian Dollar = 0.78 US $
Why is Canadian Dollar Falling?
1. Fall in price of commodities. The Canadian economy is dependent on demand for commodities such as precious metals. The global economic downturn has caused a fall in demand for commodities and therefore a fall in price. This also explains the weakness in the Norwegian Krona (In Norway’s case it is the fall in the price of oil)
2. The strength of the dollar comes after an 8 year depreciation. See: Why is Dollar strong
Forecasts for Canadian Dollar 2009
The recent bad run is unlikely to continue. The fall in the Canadian Dollar is likely to come to an end as people realise the inherent weakness of the American economy. It depends on the extent to which the Canadian economy goes into recession and cuts interest rates.