US Dollar / Canadian Dollar - USD/CAD

Whereas the Province of Canada had initially fixed its “Pound” of 1841 in parity with the American Dollar, the history of the Canadian Dollar knew an impressive “higher” point in its relation with the American Dollar (and as a consequence a “lower” for the USD/CAD cross) in July 1864 (1 CAD = 2.78 USD so USD/CAD = 0.36) when the American Dollar provisionally left its gold convertibility, a convertibility also abandoned by the Canadian Dollar during World War I , and for good, in 1933.

From 1946 to 1970, there was an interlude of a floating exchange rate regime of the Canadian Dollar (from 1952 to 1960 the Canadian Dollar depreciated a little) and the parity USD/CAD had been fixed at 1.1 ( 1 USD = 1.1 CAD).

As the American Dollar increased in value from the general adoption by the great world currencies of the floating exchange rates regime from the beginning of the 70s, the USD/CAD cross decreased to reach 0.96 in 1974, a low level that was reached again only in November 2007 (0.90) after five continuous years of re-appreciation of the Canadian Dollar against the American Dollar, in a context of raw material price increase.

Whereas the Canadian Dollar used to decrease in comparison to other great currencies when it re-apprised against the American Dollar, the period 2002/2007 saw a parallel appreciation of the Canadian Dollar against the other worldwide currencies.

As Canada is an important raw material exporter (of oil in particular) the « Loonie » (the nickname given to the Canadian Dollar but also to the USD/CAD cross) decreases when the raw material price increases (oil exchange rate boom from 2002 to 2007) that is to say the Canadian Dollar is appreciating 85% of the Canadian exports and 60% of the Canadian imports are done with the United States, the Canadian monetary and Economic authorities’ natural trend could be twofold and contradictory: on the one hand wishing to have a weak Canadian Dollar (so a USD/CAD cross with the higher number possible) in order to promote the Canadian exports, on the other hand wishing a Canadian Dollar re-apprising in order to reduce the cost of the imports that come from the United States.

In reality, the Bank of Canada hasn’t directly intervened on the Forex since 1998. On this foreign exchange market, we observed from the lowest point of November 2007 (USD/CAD = 0.90) a decrease of the Canadian Dollar in comparison with the American Dollar, the USD/CAD cross was established at an higher point of 1.2950 by the end of 2008 (1.23 in April 2009).

At a structural level, the interrelation of the Canadian and American economies has consequences on the USD/CAD cross in several cases: for example, when mergers increase between two countries or when the key interest rates fixed by the bank of Canada ( it decrease them by 0.50% at the beginning of April 2009) are clearly superior or to the contrary clearly inferior to the American rates, the investors’ “carry trade” operations that are favored (massive purchase of a currency with high interest rates in another currency with weaker interest rates).

However, this parameter seems to be in the middle ground in comparison with the relation of the Canadian Dollar with the raw material exchange rates (relative decrease of the USD/CAD cross in 2009 against a rise of the oil exchange rates).