The United States dollar has continued to go against the Canadian dollar in the last month, increasing the ever-tightening USD/CAD gap. Even though the U.S. economy continues to recover and unemployment falls below the 7% mark, the USD/CAD gap remains over a five percent, indicating continued weakness in the U.S. economy. The significant losses that have been absorbed by the Canadian economy are now being made up by the U.S. as the U.S. dollar slides away.
As mentioned previously, the U.S. has shown no sign of slowing, yet the dollar is slipping away. The reason behind this is clear, falling oil prices. It is rare that a nation’s economy will remain strong, even if it is expanding, when it is subject to a price decline, such as that experienced by the U.S. oil industry.
Oil prices have dropped by about 50% over the past six months. With more than 80% of world oil being consumed in the U.S., with the majority of our daily fuel consumption occurring in the USA, it would be wise to look at the correlation between the dollar and oil. The dollar is moving lower as oil becomes more expensive and then oil becomes more available for purchase in other nations.
The United States dollar has dropped against the Canadian dollar in the last month, yet its strength has not waned. The Canadian dollar is also falling, but the other way around. The Canadian dollar is rising to offset the dollar strength in the dollar, and so far has not suffered too much. The fall in the Canadian dollar has coincided with the strong U.S. dollar increasing strength in the U.S.
Thisrecent fall in the dollar is having a detrimental effect on employment in Canada. With companies wanting to sell their products cheaper in other markets, some jobs are being lost. Due to job losses, many companies have decided to move their operations out of Canada.
The Canadian dollar is rising, but at a slow pace. It appears that the Canadian government will intervene and defend the currency. This could indicate that the Canadian government will consider further intervention, which could be quite costly for the current government.
Considering the drastic depreciation of the currency, the Canadian government may try to force the currency down further. When the currency drops even further, then it is time for the Canadian government to consider intervention and possibly worse.
The Canadian currency has fallen below the 45 USD mark, yet it still continues to rise slightly, and likely will be worth more before long. The Bank of Canada will likely intervene to protect the currency, but there is little doubt that the government will get involved to try to protect jobs, and jobs alone are not good for the economy.
As more people lose jobs, the Canadian currency will likely continue to rise. The two parties that have the largest influence on the currency are the Federal Reserve and the Bank of Canada. Both of these governments want to preserve jobs, and they will most likely both try to achieve this goal.
New government intervention will come from the Federal Reserve, as it adjusts its policy. Will there be further intervention? This is yet to be seen, but these moves by the government have already been harmful, and will only add to the currency problems.
If the dollar is to come down further, the governments must intervene, and this has never been done before. No currency is worth anything if the government can’t stop it from falling further.
So, economic fundamentals continue to the upside, and the dollar needs to fall further. The current market conditions that we are facing are very unfavorable, and could lead to further economic disasters if the government does not act.