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Although we are unwilling to face and admit it, the “cold winter” has really come, and the global recession has become a very clear and immediate abyss. Canada is not immune from this crisis.
On Friday morning, the Canadian dollar fell to 75.15 cents against the dollar, its lowest level since October 2020.
The Canadian exchange rate against the RMB was also as low as 5.27, and Chinese Canadians who wanted to exchange foreign exchange were extremely enthusiastic for a while.
It’s not a happy Friday. Especially as the inflation data continued to be ugly, North American stocks were red on Friday, with the Dow down 139 points, the S & P 500 down 28 points and the Nasdaq down 103 points.
All things being equal, raising interest rates increases the value of the currency because it makes it more worthwhile for foreign investors to deposit their money there, that is to say, a higher return. This rule of thumb applies well now because the dollar is seen as the safest place to deposit money in uncertain times.
Adam Button, chief currency analyst at foreign exchange firm ForexLive, said: “money is pouring into the dollar because it is an excellent safe haven and the US economy is stronger than anywhere else.”
‘The Canadian dollar looks like a dive, because now almost everything that is not the dollar is being hit hard,’he said. The Canadian dollar is actually strong compared with other currencies such as the euro, sterling and yen. But for most Canadians who compare Canadian dollars to US dollars, the Canadian dollar is still on a downward trend.
Another reason for the relative weakness of the Canadian dollar is the weakness of commodities such as oil and gold, which is because the global economic outlook is deteriorating.
“Commodities are weak mainly because the market is aware of the fact that the outlook for global demand is bleak,” said Bipan Rai, foreign exchange analyst at CIBC.
The price of a barrel of oil has fallen by about $30 a barrel since June, which is enough to drag down the Canadian dollar under normal circumstances.
But investors believe that the actions the central bank will take will make the selling pressure worse. Although the Bank of Canada is also actively raising interest rates, the pain pointed out by the country’s property market and consumers may force the central bank to stop raising interest rates soon.
“until last week, the market was saying that both would stop at around 4 per cent,” said analyst Button. But now, the market says the Fed can go higher, while the Bank of Canada may not be able to do so. ”
If that happens, there will be more money pouring into the dollar, which is why Button believes it will not be surprised to see the Canadian dollar fall below 73 cents before the end of the year.
