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Is There The US Dollar Substitute?

December 15, 2022 by BPM Team

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Businessman holding a dollar note
Image source: Pixabay.com

Do you know that you can exchange 100 dollars to 136 dollars? It’s fair, legal, and might be one of humanity’s greatest secrets. But if you wanna get profit, you’ll need to learn more practical things – like the factors that are able to affect the USD/CAD currency pair. It might help you to decide how this pair’s value will change in 2023, after the US dollar has increased by about 7% to the Canadian dollar this year.

There are two things we need to know about the Canadian dollar. The first one is the connection between the CAD and the USD. The US is the main channel for the Canadian export (not surprising given they are two neighbors with large economies). So, the movement of the US and the Canadian dollar in relation to other currencies is somewhat synchronized. 

The second important fact about the CAD is its dependence on the commodity market. Canada is a big exporter of natural resources such as Brent crude oil. As a result, if commodity prices drop, the Canadian dollar tends to go down with it.

In addition, the USD/CAD ratio reflects the differences between the Canadian and the US GDP. This includes inflation levels, unemployment levels and interest rates. To monitor possible changes in these indicators, you can use an economic calendar, which shows all the important economic events.

At the same time, the US dollar remains the most popular currency for world crises. People tend to choose USD as their safe haven when all markets are decreasing. Simultaneously, the Fed has repeatedly increased the interest rate, making USD more profitable. And as it turns out, profit plus liquidity is a great combination for currency growth.

As mentioned above, the Canadian dollar is closely connected to the US dollar. That’s the reason why the CAD didn’t grow – unlike other major currencies – when the USD went down on rumors that the Fed plans to stop its hawkish policy. These relationships of USD/CAD are made pretty clear in the chart below.

USD/CAD  on tradingview chart

The orange and blue ones are almost fully synchronized, as you can see. And the CAD was dropping alongside the USD when the EUR and the GBP were growing.

One more negative moment for the Canadian dollar is China’s seemingly never-ending anti-covid measures. As a result, they’ve been lowering the demand and, subsequently, the price for energy carriers.

Experts consider that in 2023 these restrictions might be brought to an end. If this is the case, it will be good news for the CAD and energy carriers’ prices which will probably rise higher in the next year.

Most analysts forecast the Federal Reserve to change its hawkish policy in 2023. If the Fed stops hiking the key rate, the USD will be less attractive for investments. When the demand decreases, the same happens with the currency.

Could this mean the CAD will exceed the USD next year? It’s very likely. But the growth of the Canadian dollar to the US dollar might not be too significant. Especially if we bear in mind that these currencies are connected.

You may also like: American Borrowers Are Overpaying Billions of Dollars in Interest — Here’s How Fintech Can Help

Filed Under: Featured Posts, Finance Tagged With: currency, Featured Article, finance, Money

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