The Canadian dollar has been sailing through favorable times since the closing of last year. It entered the New Year with a big bang rising to almost 80 cents against the U.S dollar in the last week of December 2017. The loonie recorded its highest level since October 2017, closing at 79.5 cents, according to the bank of Canada.
The Canadian dollar has held its position as the 7th most traded currency in the foreign exchange or the Forex market for a long time. It is one of the major seven currencies that make up more than 80% of the Forex market share.Many central banks use the Canadian dollar as the reserve currency and currently ranks 6th among the top held currencies as the reserve.
It’s surprising to note that the Canadian dollar holds such a strong position when you consider that the Canadian economy just ranks number 10 in the world when expressed in terms of U.S dollars GDP. The country also has a low population which mostly keeps it out of the list of leading economies expressed in terms of population.
But that doesn’t stop it from ranking as number 9 out of all countries in terms of dollar-value exports. Canada was also able to implement an effective fiscal policy over the years, which resulted in lower inflation rates and budget deficits.
More importantly, how does Canada manage to hold on to such a good value of its currency?
The intensive export trade carried by Canada with U.S.A and other countries has also helped boost the value of the loonie. Revenues generated from petroleum, grains, minerals and wood products leverage investor interest in the Canadian dollar and keep it demand high.
The exports also create an impact on the value of the loonie which led to it being called the commodity currency. Out of all products, oil has always played a big part in determining the worth of the Canadian dollar. The recent rise was also based on the high prices of oil which have been on the rise since last year.
During the last week of December, the price of crude oil hovered around the US $60 a barrel. The price of petroleum was almost at its highest since mid-2015 reaching a 2 ½ year peak fueled by factors like anti-government protests in Iran and current supply restrictions by Russia and OPEC.
Another contributing factor was the overall retreat of the U.S dollar which also pushed the loonie up since mid-December.The condition of the U.S economy is also closely related to the Canadian dollar. Compared to the U.S dollar, the loonie rose almost 7% in 2017. The greenback fell back in comparison to many currencies while the euro recorded a strong growth.
The Canadian dollar started the year on a good note and it remains to be seen if it affects the rates of the Bank of Canada. 2018 will see the Canadian dollar standing up to its currency exchange ratio with the U.S. dollar, if not get better.