Currency Exchange Rates

Canada Currency

Canada Currency - The Current Economic Factors Influencing Canadian Foreign Exchange

Canada Currency

The Canada currency, known in professional currency circles as the 'loonie' has enjoyed a positive period of appreciation in recent years in relation to the US dollar. In the years past, the Canadian currency exchange rate has experienced mixed fortunes, falling to a dramatic low in January 2002 after the world trade center disaster. Prior to that the Canadian currency went as high as $104.32 in April 1974 during a rising commodity era. Recently, the Canada currency hit parity in relation to the US dollar. There are several contributing factors affecting Canadian foreign exchange and its rise against the US dollar.

A historical investigation of the Canadian currency exchange rate reveals a strong correlation to worldwide commodity prices. The demand for commodities has been strong in recent years as worldwide economic growth has spread to China and India which has fuelled the demand for raw materials. As predominantly a commodity producing nation, this has proven to be beneficial to Canada. The demand for oil, wheat, corn, coal, nickel, zinc and other metals has proven to be favorable for Canadian terms of trade.

Canada Currency

Although the value of the Canada currency is affected by the demand for its raw materials, there are other factors that have helped the Canadian dollar appreciation. The state of interest rate differentials, political stability, business conditions and the state of government finances can all affect Canadian foreign exchange either positively or negatively. In relation to US dollar valuation, the standout factors in recent years have been the difference between US and Canadian interest rates, the difference between Canadian and US productivity rates and inflation rates. With the US dollar currently experiencing a rapid decline and printing money to finance its deficit, this is contributing to rising US inflation. The lowering of interest rates is also exerting strong downward pressure on the US dollar. These factors all contribute to the strength of the Canada Currency.

Canada is also a nation that has enjoyed good trade relations with China. With the huge foreign exchange reserves held by China, and the movements by Chinese leaders to diversify out of US reserve holdings, this is likely to prove beneficial for Canada in the years to come. The Canada Currency is also strongly exposed to the rise in oil prices and much of its fortunes in the years to come will be determined by where oil trades. With the current boom in resources unlikely to abate unless a major bubble develops in China, the demand for Canadian currency continues to look favorable.

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