Canadian Dollar (CAD) Forecast & Predictions
Canadian Dollar (CAD) exchange rate forecasting strategies
You may already know that just seven currencies make up almost 85% of all forex trading as of 2016. What you might not know is that the Canadian dollar (CAD) is amongst the top six currencies most-often held as a reserve. Canada rounds out the top ten of the world’s largest global economies despite its comparatively small population due, in part, to its extraordinarily tight trading relationship with the United States (approximately 74% of Canadian exports go to the U.S.) As such, you’ll usually see forecasts comparing the CAD/USD (U.S. dollar) exchange rates or sometimes CAD/GBP (pound sterling) exchange rates.
Please keep in mind that OFX does not provide personal advice or specific exchange rate forecasts and predictions; however, below are some general considerations you can use when evaluating forecasts and making your own decisions regarding the best time to transfer your money internationally.
Some key considerations in CAD/USD forecasting
When attempting to forecast the movement of the Canadian dollar, or loonie, investors may take into account these country-specific factors:
- Oil. When America imports oil, its preferred trading partner is Canada. In fact, as of 2015, the US consumes a whopping 2.8 million barrels of Canadian crude oil per day–almost triple what the US receives from its second source, Saudi Arabia. With petroleum and oil as primary exports, Canada, and its dollar, tend to benefit from any commodity booms and conversely, can be vulnerable to commodity busts.
- The relative strength of the US economy. The health of Canada’s critical trade partner has a strong effect on the loonie. In recent decades, the loonie fell during the US tech boom, but remained strong against the dollar during the sub-prime mortgage housing collapse. This relationship plays a pivotal role even in forecasts which don’t directly compare CAD/USD exchange rates.
- Chinese trade policies. The trade relationship between China and Canada has grown throughout the last twenty years with many economists believing it’s still below its potential. Wood pulp and paper products, as well as agricultural products like seeds and fish, dominate exports destined for China. Additionally, Canada is home to a large number of Chinese expats and is a popular real-estate investment location for Chinese investors, which is another reason why this relationship is one to watch when reviewing forecasts.
- Wood products and paper. Canada’s is currently the world leader in forestry exports by trade balance. Geographical location, which provides access to the Great Lakes, Columbia River Basin, and Hudson River, allows for cheap and efficient transport of logs to most parts of the U.S. and beyond. This unique geographical position makes the Canadian forestry industry very competitive from a global perspective. As such, it’s an industry to watch when evaluating CAD forecasts.
- Minerals, gems and precious metals. Canada is home to some of the world’s largest gold mining companies. Because commodities like gold and silver are traded in US dollars, mining-related goods have a somewhat unique status relative to other Canadian exports. A weak loonie can be positive news for Canadian mining projects by attracting investment when the loonie is weak and producing high-profit margins when the currency recovers.
In sum, the loonie is a prime example of a commodity currency which can be very volatile.
Read our exchange rate forecasting article for a more general discussion about which macroeconomic factors to consider.