Canadian dollar has gone from best performer to one of worst.
The Canadian dollar has had few difficult months being weighed down by slumping crude oil prices, one of the currency’s biggest drivers for gains against the USD and the approaching election.
The Canadian election result has caused some volatility, although typically there is marginal difference between the major parties in terms of economic policy, therefore unlikely to influence currency trading in any significant way.
After outstripping its G10 counterparts in the first six months of 2021 the loonie has been one of the worst-performing developed-market currencies in the second half of the year.
Many market participants have been heavily favouring the CAD over the USD, so any unwinding of these positions will leave the CAD vulnerable to a sell-off, reducing demand and decreasing its value.
In 2021 the Canadian dollar has risen as a global economic recovery takes hold, with larger gains if the Bank of Canada is seen to be preparing to reduce monetary stimulus, economists say. CAD Overview
The greenback has been helped in September by the US Fed Chair Jerome Powell, who signalled that the bond tapering is expected to start in November. Bank of America commentators see this leaves the door open to interest rates hikes starting mid 2022. USD Overview
The Bank of Canada’s announcement in late April to bring forward the time when it expects to raise interest rates helped the Canadian dollar to rise up above US80 cents (USD below C$1.23).
The Canadian central bank’s decision to cut back its bond purchases – quantitative easing (QE) – was due to Canadian house prices, employment and the currency.
The Canadian Real Estate Association calculates house prices have climbed 17 per cent in 12 months.
“The bank will continue to monitor the potential risks associated with the rapid rise in house prices,” the Bank of Canada said in its statement this week and said it was “tapering” its asset purchases due to the “progress made in the economic recovery”.
Note that forecasts and predictions for the USD/CAD exchange rate change all the time, affected by news events and relative sentiment towards the Canadian and US economies and this exchange rate is even more volatile than usual because of the uncertainties around the Coronavirus pandemic.
You can read more about other CAD exchange rate forecasts here CAD Forecasts for 2021.
The CAD hit its highest level against the dollar in 2.5 years towards the end of 2020, driven by the Canadian employment report, which was stronger than expected sixth time in seven months in November. However, it was experiencing weakness against euro and pound.
Whether the US dollar will rise or drop in the future versus the Canadian dollar is a difficult question and the answer really depends on many factors. The best way to consider the current USD-CAD relative value is to check the change in the exchange over a range of periods to the present day. The below table does this for periods going back 10 years.
10 Sep 2021
|0.3% ▼||2 Weeks|
26 Jun 2021
|2.9% ▲||90 Days|
24 Sep 2020
|5.2% ▼||1 Year|
25 Sep 2016
|3.9% ▼||5 Years|
27 Sep 2011
|24.1% ▲||10 Years|
29 Sep 2001
|19.8% ▼||20 Years|
Disclaimer: Please note any provider recommendations, currency forecasts or any opinions of our authors should not be taken as a reference to buy or sell any financial product.