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.

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.

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.

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.

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.

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.