Factors that effect the value of the canadian dollar

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Factors that affect the value of the Canadian Dollar Factors that affect the value of the Canadian Dollar

Table of Contents

Introduction

Canadian Dollar : Fluctuating Currency

Factors that Influence the Exchange Rate of Canadian Dollar

1 . Economic Stability and Trade Balance

2 . Commodity Prices

3 . Interest Rate

4 . Socio-political Factors

5 . Investor 's Perception

Conclusion Factors that affect the value of the Canadian Dollar

Introduction

There are various factors that contribute toward influencing the exchange rates . The appreciation or depreciation of a particular

br currency is not the result of a single factor i .e . factors influencing the exchange rates do not function in segregation but an intricate complex of these factors operates . Some of these factors are explicit whereas others operate latently but play important role in moulding the exchange rates of a particular currency . Some economists are of the view that almost each change and disturbance in the domestic and global economic and political scenario casts its effect on the exchange rates However Economists has identified certain specific factors that overtly influence the exchange rate of a particular currency i .e . economic robustness of the country , its socio-political situations , its fiscal and trade deficits , interest and inflation rates , political stability etc

Canadian Dollar : Fluctuating Currency

The exchange rate is arguably the most important asset price in a small open economy like Canada (Murray , Norden and Vigfusson 1996 .

. 2 ) But Canadian Dollar is often labelled as a fluctuating currency (Katz , 1953 ) Samuel A . Katz as early as 1953 labeled Canadian Dollar as a fluctuating currency . This flux in the Canadian Dollar exchange rate as compared with U .S . Dollar is well indicated by Murray Norden and Vigfusson (1996 . Their study manifests that over a period of 25 years (1970-1995 , Canadian Dollar has moved thin a range of approximately 35 cents (U .S , reaching a post war high of U .S 1 .04 on 25 April , 1974 and an all-time low of 69 .5 cents (U .S ) on 4 February 1984 (p . 5 ) Canadian dollar is always weighed against the U .S . dollar due to the reason that United States is the largest trade partner of Canada . Now let 's look into the factors that affect the fluctuations in the exchange rate of Canadian Dollar

Factors that Influence the Exchange Rate of Canadian Dollar

Economic Stability and Trade Balance

The vigour and robustness of Canadian economy is the foremost factor that manipulates Canadian Dollar . The macroeconomic indicators of Canadian economy indicate its strength and its steady growth rate . So these features of the Canadian economic milieu attract investors due to its prospective economic returns . So law of supply and demand necessitate an increased demand for Canadian Dollars . This raised demand elevates the exchange rate of Canadian Dollar in the international market . In vice versa to this situation a weak Canadian economy does not captivate the attention of the investors and demand for Canadian dollars remains limited . But factual reality shows that despite the strength of Canadian economy , sometimes its...