Why is Canadian Dollar Falling?

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.

One Response to Why is Canadian Dollar Falling?

  1. Pierre LeBourdais October 26, 2008 at 11:31 am #

    As for currency fluctuations and other similar forms of speculation, one can rationalize anything; Weather, strikes, rumors…… the field is unlimited. Man made manipulations are just too common.

    Because Canada lacks the economies of scale that exists in the USA it is relatively easy for a major player to create a significant impact in the canadian money markets, whether by accident, by design or by strategy.

    Once you accept the notion that the true value of the canadian should be near parity with the (US) dollar – based on economic fundamentals- the recent drop of CAD represents a “quick fix” opportunity for a legion of investors who have incurred heavy losses in USD, whether in real estate, stocks, or bad debts.

    With the coming of the “Amero” which, it would appear, would consider CAD and USD at par – each respective currency being worth one Amero – this temporary devaluation of CAD could be a gravy train for those in the know. Would that surprise you?

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