Causes of the Canadian Dollar Appreciation
Appreciation of the Canadian dollar in the last years can be explained by internal factors, such as performance of Canadian economy and interest rates, and external factors, such as commodity prices and weakness of the U.S. economy.
State of Canadian economy. Canada has been quickly recovering from the recent recession. For the year 2010, real GDP grew 3.1%, following a decline of 2.5% in 2009. Strong economy makes Canada an attractive target for investors who seek secure returns. This raises the demand for the Canadian currency and, therefore, pushes the exchange rate upward. This argument is supported by the exchange rate fluctuations in the above graph. The Canadian dollar was rising as the economy began to recover in the late 2009.
State of the U.S. economy. Rise in CAD/USD exchange rate can be largely attributed to depreciation of the U.S. dollar. The U.S. dollar has historically been a safe investment target for many investors. However, now this situation is changing and demand for the currency is falling. The U.S. economy has been facing serious difficulties in the recent years. The country’s trade deficit was almost $500 billion in 2010, a 33% increase from 2009. The U.S. is also the world largest borrower with a $4,453 billion of foreign debt. Weak economy and high uncertainty are turning investors away from the American dollar, which is supported by its... [continues]
Cite This Essay
(2011, 05). Cad/Usd Exchange Rate. StudyMode.com. Retrieved 05, 2011, from http://www.studymode.com/essays/Cad-Usd-Exchange-Rate-698026.html
"Cad/Usd Exchange Rate" StudyMode.com. 05 2011. 05 2011 <http://www.studymode.com/essays/Cad-Usd-Exchange-Rate-698026.html>.
"Cad/Usd Exchange Rate." StudyMode.com. 05, 2011. Accessed 05, 2011. http://www.studymode.com/essays/Cad-Usd-Exchange-Rate-698026.html.