The Canadian dollar showed an unprecedented growth against the U.S. dollar last year. Rallying almost straight from 1.1635 to 0.9905, USD/CAD lost almost 15% in one year and broke two important support levels — psychological barrier of 1 CAD per USD and reaching its lowest value since the floating of the USD/CAD rate — 0.9057.
The growth of the Canadian dollar was mainly caused by the more than 50% rally of the oil prices and similar price uptrends for the majority of the commodities that Canada is exporting. But what consequences this fast appreciating had for the loonie?
First, Canadian exporters suffered greatly from such Forex trend, as their profits fell down while the nomial value of the Canadian dollar soared, thus the record fast drop of the Canadian trade balance surplus. Second, the retails sales also suffer from the fast CAD’s appreciation and now start to indicate that the economy is facing problems in its growth.
Canadian government realized the risks of this trend and started talk about holding down the CAD’s value against USD and other currencies as the major interest of the monetary policy. Cutting the interest rate was the first step to slow the national currency’s growth. USD/CAD gained more than 5% through November and December and returned from below the 1.0000 mark.
This year started with a bullish trend on USD/CAD which, according to many currency analysts, may continue through the whole 2008, helping both the U.S. dollar to recover from the depreciation and Canada’s exporters to reclaim their positions.
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