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The Canadian Exchange Rate

The Canadian Exchange Rate

Trade rates are rates at which nations currencies are exchanged, that is, the worth of one currency by way of another. A lot of nations now use the American greenback as the usual in opposition to which to measure the value of their own currency. As the good majority of Canada’s international commerce and monetary transactions are with the US, the worth of the Canadian dollar in relation to the US dollar is of prime importance to Canada.

The dollar grew to become the official financial unit of the Province of Canada on 1 January 1858 and the official foreign money of Canada after Confederation. Its “spot” or present market worth has approximated the US$ till the previous’s recent decline, the significant exception being in the course of the US Civil Struggle, when the Canadian dollar rose to US$ 1.45. From 1879 to 1914 Canadian and American currencies had been on the gold standard and were therefore each defined by mounted and equal units of gold.

Following World Battle I, apart from the transient period between 1926 and 1929 when Canada returned to the gold normal, the Canadian dollar has been both pegged at a particular value in relation to the US dollar (1962-70) or allowed to fluctuate in line with international demand and supply. From 1952 and 1962 and since 1970, the Canadian dollar has fluctuated or “floated.” During these intervals the BANK OF CANADA has purchased and bought overseas alternate to smooth out daily fluctuations in the rate. It has additionally raised or lowered Canadian interest rates, relative to these in the US, to encourage or discourage funds flowing into Canada that improve or decrease the worth of the Canadian dollar. Since being unpegged in 1970 the Canadian dollar has traded as high as US $ 1.04 in 1974 and reached a historic low of nearly US $ 0.63 in the summer of 1998.

The exchange rate of the Canadian dollar is influenced by numerous elements moreover direct government trade rate policy. Affluent business conditions abroad, particularly within the US, containment of Canadian inflation, improved labour productiveness, good grain harvests, new resource developments and expanded home and foreign direct funding in export-oriented industries all help to stimulate exports and put upward stress on the dollar’s overseas worth. An increase in international tourists visiting Canada has an analogous effect. Conversely, the other of these forces places downward strain on the dollar’s exterior value. In addition, considerations about whether or not the province of Qubec will remain within the Canadian federation are inclined to put downward stress on the Canadian dollar.

By mid-1998 the financial turmoil and financial uncertainty in Russia and much of Asia raised fears about the energy of currencies of some developed countries like Canada. Canada exports significant quantities of resource-based mostly products to Asian international locations, which are actually unsure markets. As properly, Russia, with its much-depreciated foreign money, is a competitor of Canada for a lot of such products. Because of these damaging components, currency speculators have been moving funds out of Canada to the US in anticipation of a weaker Canadian dollar. Their own actions have induced their expectations to be realized, regardless of the Financial institution of Canada spending billions of dollars ($ 5.eight billion in August 1998 alone) shopping for up Canadian currency to attempt to reduce the extent of its depreciation in international change markets.

This decrease dollar does, nevertheless, have advantages for Canadian corporations exporting products to the US and elsewhere. The place such products are priced in US dollars, the revenues to Canadian corporations, when it comes to Canadian dollars, increase. The place the products are denominated in Canadian dollars, they turn out to be cheaper to overseas consumers, so more of them are sold. Either means, exporters benefit. But there are prices too. Canadians import services equivalent to just about 40% of the full output of the economy (Gross Domestic Product), with about 76% of those being from the US. When the value of the Canadian dollar falls, all these services and products value extra for Canadians to buy. The lower greenback raises inflationary pressures, which may unfold all through the financial system, despite the fact that the unemployment rate remains quite high.

The present downward stress on the greenback has primarily been brought on by intense speculation moderately than main weaknesses in the Canadian economy. Due to this, the Financial institution of Canada responded by raising the Bank Price by one per cent. Though this improve raises costs for borrowers, larger rates of interest discourage capital flight from Canada and assist to stabilize and even improve the value of the dollar. As soon as the speculation mania has subsided, it will be doable for the Bank Price to be lowered once more, thereby decreasing the rate of interest structure.

Archived under Exchange Rates Comments

Markets Breakdown after Bernanke

Markets Breakdown after Bernanke

Both the Asian and European markets rallied along with their respective currencies against the dollar as Federal Reserve Chairman Ben Bernanke was expected to speak to the Senate Banking Committee on Tuesday. Prior to his semi-annual monetary policy testimony, the Euro reached a one-month high against the greenback as the markets expected European Central Banks to hike rates before the Fed.

Bernanke began with a comprehensive economic outlook of the US economy before focusing on the monetary policy of the Federal Reserve. He stated “stronger demand, both domestic and foreign, has supported steady gains in US manufacturing output.” On the same day as his testimony, Bernanke’s statement was supported when the ISM manufacturing numbers reported the highest levels since May 2004.

Bernanke continued stating unemployment is slowly improving and “it could be several years before the unemployment rate has returned to a more normal level.” Recently the Congressional Budget Office (CBO) forecasts that unemployment will drop to 5.3 precent in 2016 as the baby boomers exit the workforce supporting his assessment.

Bernanke expects inflation to be low as most FOMC participants “project that overall inflation will be about 1-1/4 to 1-3/4 percent this year and in the range of 1 to 2 percent next year and in 2013.” High unemployment levels and a weaker housing sector due to the competition between foreclosures, existing, and new homes will keep inflation tamed.

However with rising commodity and oil prices may affect price stability and the Federal Reserve will continue to monitor these developments according to Bernanke.

The Federal Reserve will keep the federal funds rate near zero for an “extended period” until economic conditions warrant a reassessment. Bernanke supported the previous plans of purchasing longer-term Treasury securities providing improved financial conditions and strengthened the recovery.

Continued plans to purchase $ 600 billion of longer-term Treasury securities will continue providing “monetary policy stimulus” to the economy which according to Bernanke provides the same result as lowering the federal funds rate.  Money is made cheaply available for households and businesses to grow domestically however globally commodity prices are rising due to the falling dollar.

Appearing on CNBC PIMCO CEO Mohamed El-Erian said if the Federal Reserve were to pull back the stimulus “the markets will initially react with a sell-off because the market has already priced-in the support of the FED.”

Both the European and U.S markets reacted negatively to Bernanke’s comments as oil prices and inflation concerns rose. The transportation sector was under pressure with the rising oil prices and industrials were concerned with higher manufacturing costs due to higher priced commodities. Bernanke will continue his testimony to the Senate Banking Committee for the second day on Wednesday, February 2, 2011.

Archived under Bernanke Comments

FOREX VIDEO | NFP Review | April 1, 2011

The best headline NFP number in 10 months gave the US dollar a lift during the 90 minutes after the release of the US jobs report. The greenback then got smoked after New York Fed president William Dudley expressed concerns about premature monetary policy tightening during a speech in Puerto Rico.

Archived under Forex News Comments (1)

FOREX VIDEO | New York Session Review | March 25, 2011

Comments by Philadelphia Fed President Charles Plosser during the New York lunch hour gave the greenback a notable lift. The EUR/USD currency pair fell 75 pips during the final 45 minutes of the European trading week.

Archived under Forex News Comments

FOREX VIDEO | New York Session Review | January 4, 2011

The US dollar started the New York session with a firm tone as commodities saw a sharp sell-off. The greenback also got a boost from data showing a rise in US factory orders and an upward revision to durable goods orders figures. The EUR/USD currency pair fell more than 100 pips after the opening bell on the New York Stock Exchange.

Archived under Forex News Comments (1)

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