FEBRUARY 2013 |
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and international trade. Using its exchange pattern,
economists are able to indirectly observe the internal behaviour in other economies – particularly the US - spotting any patterns that may not have been seen directly. As a result, in the American economy
as a whole the Canadian dollar has a similar role to that of the Australian dollar (AUD) in the Asia-Pacifi c region. Who would have thought that parity
would have become the norm for the Canadian dollar against the US dollar? Less than ten years ago, in 2003, the US dollar bought Canadian $1.60. So we have seen an appreciation of nearly 40% in the last 10 years. There was a brief respite period in 2009 when risk aversion was to the fore and the US dollar benefi ted from its safe haven status and strengthened to Can$1.30/ US$1. But this proved to be short lived and we soon saw the return to parity, and for the last few years we have seen the exchange rate oscillate around parity with a peak value of Can$1.05/US$1
“Who would have thought that parity would become the norm for the CAD against the USD?”
and a low of Can$0.95/US$1. In the last twelve months we have seen the range narrow even further with the low moving close to parity. Against sterling we have seen a
similar trend with £1 originally buying Can$2.35 in 2005 and now buying nearly 35% less in 2013. We did see a brief period of sterling weakness in 2006 when sterling weakened to Can$2/£1 but then appreciated to Can$2.30/£1 in the following year. Then along came the fi nancial crisis and the collapse of sterling as it broke through a 20-year low against the Canadian dollar. For the last twelve months we have seen the Canadian dollar and sterling move in a narrow range, oscillating between a high of Can$1.62/£1 and a low of CanS$1.55/£1. The euro’s trend against the Canadian
dollar followed that of the US dollar starting off around the Can$1.65/€1 in 2003 level and falling over 20% to around Can£1.30/€1 early 2012. Mid 2012 we saw the Canadian dollar strengthen to Can$1.225/€1 but over the last few months this trend has reversed back to Can$1.30/€1, as the euro benefi ted from the support of the European Central Bank. So it’s fairly clear that the Canadian
dollar has been far stronger than the US dollar, the euro and sterling and a much safer bet in diffi cult economic times. Not really a surprise given the boom in commodities in the fi rst ten years of this century and the comparative robustness of Canada’s banking system. What can we expect in the coming
2.5 2 1.5 1
years? I see very little downside for the Canadian dollar. Admittedly, it is very dependent on both commodities and the US economy and as such isn’t immune from suffering its own economic woes. However, it doesn’t have to rebuild either the government’s balance sheet or that of its banks. What is happening in the US, the UK and the Euro zone is that banks are having to rebuild
FX
CANADIAN DOLLAR | 57
their balance sheets and one of the consequences of this is that they reduce their lending which obviously constricts business. These governments then step into the breach as they increase liquidity in an attempt to boost their economy, which further increases their debt. No wonder those looking for jobs consider Canada as a very interesting opportunity as clearly there is some light at the end
of the tunnel. By tracking the strength of the Canadian dollar and all key currencies around the world, Smart Currency Exchange is able to minimise clients’ exposure to exchange rates when making international payments. For more information, please contact either myself or one of my team on 020 7898 0541.
GBP/CAD Average Monthly Exchange Rate 2012
1.63 1.62
1.61
1.6 1.59 1.58 1.57
1.56
1.55 1.54
Average Yearly GBP/CAD Exchange Rate
0.5 0
The OPP currency reports are prepared by Smart Currency Exchange, independent currency brokers.
This series of reports can be downloaded from
www.opp-connect.com/infozone SCAN ME
To contact Smart Currency Exchange: Tel: +44 (0)207 898 0541 Email:
Partners@Smartcurrencyexchange.com
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