Major Factors Impacting The CAD/USD

The relationship between the Canadian Dollar and the US Dollar has for the most part part been one that has seen the CAD lagging behind its neighbor to the south. There have been historic highs;  in 1864 on July 11 the Canadian dollar reached its highest exchange rate of US$2.78 – this was after the US had briefly abandoned the gold standard.  The technological boom of the 1990s was largely US-centric, resulting in the CAD being traded for an all-time low of US$0.6179 on January 21, 2002. However, between 2002 and 2013 it saw its value against the US dollar increase as well as against other currencies. The CAD has since been considered a petrocurrency due to its large volume of oil exports – the US being it’s biggest customer. As a result, Canada’s dollar is deemed by the international community to embody the term “commodity currency.” Oil isn’t the only commodity that Canada capitalises on; gas and timber also account for its exports.  In essence, the CAD is largely pegged to its commodities, thus when prices are low, the currency will also be low.  When it comes to the CAD/USD though, global crude coil inventories has the most significant impact, followed by political stability and lastly, natural gas storage. 

Global Crude Oil Inventories

Every week a report gets published detailing the amount of barrels of oil held in inventory – this report is known as the Global Crude Oil Inventory. The outcomes of the publication can and will impact the exchange rate when trading USD to CAD. For instance, if the volume of gasoline in reserve is high, then the oil price will experience a decline. On the other hand, if the stockpile is low, thus indicative of good sales, the oil price will be high. 

Political Stability

Another affecting attribute to be aware of when it comes to the CAD/USD relationship is political stability. To cite a key example, back in 2017 when Donald Trump became the President of the United States, it was widely assumed that the value of the US dollar would deteriorate, in which case it did not. However, Trump’s tariffs on Canadian Steel saw hundreds lose their jobs. What ensued over the course of the Trump presidency was a back and forth between the US and Canada with each country electing to raise tariffs – of which the ultimate fallout is likely still be to tallied up.  In essence, political stability is important. The more stable a country is, the more the value of its currency can increase. The opposite is also applicable. 

Natural Gas Storage

As is the case with the Global Crude Oil Inventories report, each week the Energy Information Administration (EIA) releases a Natural Gas report. This report reveals the change in the number of cubic feet of natural gas kept in underground storage.  The numbers essentially affect the CAD and the Canadian energy sector. If there is a higher amount of natural gas in storage, it means that demand is weak and this ultimately leads to a decline in oil prices.   As is clearly evident, while Canada has a slew of products it manufactures and exports including vehicles and aircraft, oil remains the biggest one of the lot, accounting for sales of over $60 billion annually.