Canadian Dollar (CAD) Exchange Rate Forecast

Although any currency could be compared with the Canadian Dollar, or CAD, often forecasts are made using the US Dollar.  For years, the exchange rate was such that a person could go across the border from the United States into Canada and buy merchandise at a huge discount.  However, today the Canadian dollar exchange rate is almost even to that of the US Dollar.

With Canada and the United States being neighbors, there has been a significant amount of attention being paid to both currencies in this challenging economy.  One good thing is that for commodity currencies, since November of 2009, they have remained relatively stable.  Yes, October of 2009 was low but it appears that the Canadian dollar exchange range is slowly creeping back up.

When looking at the Canadian and US dollar currencies as a pair, they have actually seen movement independently of forecasts for interest rates with recent trade.  With this, moves in crude oil, as well as other primary commodity markets have not been sacrificed.  When looking at the relationship between the Canadian Dollar and US Dollar short-term in relation to crude oil, as energy prices is climbing, new highs are being experienced.

Another change seen with the Canadian dollar forecast is that Overnight Index Swaps believed the Federal Reserve within the United States would see increases that would be just a little more aggressive than see with the Bank of Canada.  Even so, considering these forecasts are just an 18 basis point spread over expectations for a 12-month period, no records are being beat.  Instead, forecasters believe that traders for the Canadian and US dollar should be looking at any of the more intense moves specific to crude oil and other major commodities.

Although all of the main currencies took a dive in December of 2009, it was interesting to see that the Canadian dollar actually fared better.  This currency also decreased but only by a 0.7% decline.  Keep in mind that the Canadian Dollar does not have a clear yield advantage when compared to other commodity counterparts such as the Australian Dollar or New Zealand Dollar, the Canadian exchange rate is still currently being driven by risk sentiment.

Today, the US dollar and Canadian dollar is 86% correlated when looking at the MSCI World Stock Index but forecasters state that if risk-driven trading were moved away from, instead going to an environment linked closer to basics of the economy, then it appears both the Canadian exchange rate and US exchange rate will begin to recover.  Because of this forecast by experts, the best advice would be to do nothing major, waiting for a stronger change.

Even if this takes a little time, sitting large investments out for the time being seems to be the best course of action.  Anticipation is that within a year or so, both the Canadian dollar and US dollar will again be among the strongest leaders for worldwide currency.  The market has seen some improvement but investors still need to be cautious when making decisions.