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« PPT Propping Up The USD Again? | Main | The Federal Reserve: The Greatest Scam In History? »
Tuesday
Aug142007

The Canadian Dollar versus The US Dollar

We are partly writing this article in response to a comment by one of our readers, Kevin, who asked about the Canadian dollar and its relationship with the falling US dollar.

So the following article will attempt to answer Kevin's question and hopefully answer other questions readers of The Gold Prices Newsletter may have had regarding the Canadian dollar and the US dollar.

The comment by Kevin was as follows:

Any thoughts on how the Canadian dollar might be affected given a deteriorating US dollar? Never seem to get much info on this.

On one hand Canada has a strong resource based economy but on the other the US is our biggest trading partner. Not sure how that plays out. Any thoughts would be appreciated.

Cheers


We hope this article answers your question Kevin, but if you or anyone else is still unclear about any of the issues, please do not hesitate to post a comment at the bottom of this article.

Aside from our opinion that gold and silver are the ultimate currency, the Canadian dollar would probably be our currency of choice in today's world due to its strong resource based economy.

The Canadian Dollar 14 aug 07

Other economies that have a large resource base are also seeing their currencies doing very well, such as Australia as the chart of the Australian dollar shows below.

AU Dollar 14 aug 07

The reason these currencies are rising is that investors are confident in the economies of the underlying countries. As investors are confident in the commodities market and the natural resource sector, these economies with strong resources bases are doing well and so are the accompanying currencies.

So if a rising currency shows confidence in an economy, the US dollar doesn't say anything good about the American economy, as it continues to plunge.

The US Dollar 14 aug 07

Even though the Federal Reserve has been raising interest rates, the US dollar continues to decline, currently very close to the key technical support at 80.

As the US dollar declines, we think that the Canadian dollar will continue to make gains, provided the health of its resource sector remains intact.

The Canadian Dollar versus The US Dollar

Now Kevin made a very good point that if the US economy takes a downturn, the Canadian economy may suffer as the USA is a large trading partner to Canada. In fact, large is a understatement as the USA represents 82.3% of exports, the next biggest partner being the UK at 2.2%

We believe that the US economy is due for a significant downturn and this will not only affect Canada, but every country in the world. However, Canada has large natural resources which should prevent it from doing as badly as the USA. The US isn't the only place where Canada can sell its vast reserves of natural resources of oil and gas. Its oil reserves are second only to Saudi Arabia and it is the worlds biggest producer of zinc and uranium as well as leading the industry in gold, nickel, lead and aluminium production. Canada should be able to find plenty of customers for its resources around the world, especially in Asia, where China and India are growing at an extraordinary rate and therefore have great demand for natural resources in order to continue this growth. As well as mining, Canada is a leading supplier of wheat and other grains. The cost of food in China rose 15.4% recently, with some foods rising 40% in price. As China's population continues to grow, this could be another outlet for Canada.

A lower US dollar means that US products will appear cheaper to foreigners, therefore this should increase US exports. This means that the US may be in a better position to complete with Canada in certain industries, which could have a negative effect on the Canadian economy. It is possible that Canada will try to lower the Canadian dollar, in order to remain competitive.

We prefer the Canadian dollar to the US dollar, but investments in gold and silver are in our opinion a much better way to hold and increase your personal wealth. Keep updated on the gold market and good gold stocks to invest in by subscribing to the FREE Gold Prices Newsletter. You can also stay informed on the silver market and silver stocks by subscribing to The Silver Prices Newsletter also free of charge.



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Reader Comments (10)

Canada has always had abundance of natural resources, but its only last copuple of years that their currency is increasing in value. Its not solely the na'l resources; its the coupling of the strength and wisdom of their gov't.
Further, I was given to understand that Brazilian currency is by far the strongest of all. Is that not true?
Thanks.

August 15, 2007 | Unregistered CommenterJohn Stayduhar

I have a dumb question, if the US stock market is tanking why is the US dollar climbing. Right now it appears gold in moving in tandem with the US dollar, in the opposite direction. This is similar to two years ago the run up in oil prices was blamed on the shortage of gasoline in the US, at one point the oil futures climbed more on a percentage basis then gas while it was gas in short supply not the oil.

Is this big money working against the actual fundamentals?

August 16, 2007 | Unregistered CommenterLarry

I think Larry is not reading this article correctly. The US dollar is NOT rising Larry---its falling and is dangerously close to the mythical figure of 80.
Furthermore, the gas we use in our polluting combustion engines (read cars) is derived from the oil that Canada has so much of (so does Sausi Arabia)

August 17, 2007 | Unregistered Commenterbobi

Hi bobi.

Better get with the news since Auguat 6 the US $ index was rising steadily with August 17 being the only real down day.

My question is when the worst was happening to the markets last week the US dollar index was rising why?

If things in the US where so bad why would anyone buy US dollars.

August 18, 2007 | Unregistered CommenterLarry

One point that I believe the report on the Canadian Dollar is missing is that the Canadian Central Bank enforces with discipline its mandate of controlling inflation at 2% per year.

See, when the currency was linked to gold (i.e. Gold Standard), this was automatically embedded into the system, as the amount of new gold added to reserves was also 2% per year on average: therefore the government could increase only by that same amount the money in circulation (i.e. 2% annual inflation).

Canada's Central Bank sold all its gold reserves but it has had, at least recently, the discipline to keep the addition of new money into the system at 2% per year.

The US Dollar has devaluated almost 60% against the Canadian Dollar in the last 6 years: from 1.67 in 2001 to 1.05 nowadays. You may say that the Canadian Dollar is as good as gold.

Cheers…

August 19, 2007 | Unregistered CommenterEduardo

This column shows one of the many (if not main) raison d'etres for why the US is pushing for the SPP/NAU (North American Union) and the Amero dollar - wanting to share ownership of our resources. Empiricism at its most blatant. If your dollar were tanking, wouldn't you like to hook up with one that's rising? It's dead obvious, but I'll bet aren't 2 Canadians out of 20 who know what's going on.

August 26, 2007 | Unregistered Commenternancy

As far as stable currencys go, isn't the Swiss Franc one of the worlds most stable. Or perhaps it may be stable, but not gaining strength compared to other currencys. Can someone clairfy this. Should we try to get out of US $ and into Cad $, Euro, or Swiss Franc. Thanks.

March 1, 2008 | Unregistered CommenterDennis

Dennis, For what its worth we don't have any faith in currencies, that's why we are gold bugs.

March 1, 2008 | Unregistered CommenterGold Prices

its now may 27th the gold price is fighting once again to get above 1000 usd and it has a perfect reverse head and shoulders formation. the pound fell last year and is now on its way up the dollar is falling. the canadian dollar fell against the pound which is surging although all currencies are falling agianst gold. I m buying shares in the canadian stock market because i believe its currency will rise with t e dollar and stay stable if the dollar falls. the pound and euro have very weak fundamentals and i would avoid them . i think the dollar will go up agin but not to new highs. inflation is on its way so the canadian dollar will do well i hope lol

May 28, 2009 | Unregistered Commenterliam

What I've been seeing in the gold prices is that as gold prices goes up, the us dollar goes down and in terms of the Canadian dollar, it remains flat. When will I make any money in buying gold bars from Canada?

May 30, 2009 | Unregistered Commenterstig

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