As of the last week of January 2020, the Canadian dollar (CAD) has weakened against the US dollar (USD) for seven straight weeks. By the evening on January 27, one of Canada’s dollar purchased only $.76 in the US. While speculation that the Bank of Canada would increase interest rates eased some of the downward pressure when it declined to do so on January 22, the outbreak of the coronavirus in China has caused oil prices to decrease across the world. Given Canada’s large oil industry, the CAD fell along with the price of crude oil. More generally, concerns over US President Donald Trump’s protectionist inclinations have proved to be a damper on Canada’s dollar for the past few years.
If this sounds confusing, you are not alone as foreign exchange is no simple matter. Factors influencing the exchange rate with the US range from commodity prices to political developments. Let’s now look at some of the reasons why the exchange rate fluctuates.(more…)