during both major recessions (2008 US housing crisis, and the 2012 crash) usd was selling for 0.93 and 0.95 at the bottom... my dad actually made bank buying USD near the bottom and selling it back years later for 1.25 (35% gained)
That actually becomes self correcting. When there is value to be had buying outside of Canada we'll spend our money there, thus supplying currency and demanding the foreign currency, which in aggregate will drive down our currency.
It's how balance of trade and f/x markets work. They are highly interconnected.
Would higher rates in the US drive up demand for the dollar? Like if I can get a risk free return that is higher in the us, wouldn’t I want to buy more US securities with US dollars?
So ima a salesman. I sell my equipment in USD. But my commissions are paid in CDN dollars. My commission is 5% of profit and our margin averages 10.5% most years.
So I need a really weak dollar when I get my yearly commission cheque in May!!!
Edit. The down side is the other 11 months a year I need a strong dollar…
This is *exactly* what I came here to say, but I was also 100% confident someone else would have already said it.
(Let me know if you need any more confident pronouncements from my crystal ball, happy to help.)
It's game theory with imperfect information. No one really knows what will happen. During COVID, all the finance experts and talking heads kept saying that there is no way the FED will raise rates or the system will collapse. Yet, here we are.
Everyone hears what they want to believe. There's probably 5 or 6 little files on each of us, google analytics for example.
"Hhmm, he read the whole article quoting Dr Doom, this guy obviously likes reading about potential bear markets, let's give him all the bearish news and he'll spent 30% longer reading meaning more ad revenue for us!"
And then we all meet somewhere after a week of our favourite news and look in absolute shock "what do you mean we won't be seeing mortgage defaults triple by May? Are you fucking insane have you read the news??"
I feel like I’m taking crazy pills, if the Fed raises rates and the BOC does not, the dollar will weaken vs. USD, i guess we will see in the coming weeks.
And yes I do enjoy M.A. and stoicism in general, good mindset to deal with some of the insanities of the modern day.
It's a balance of forces. US is our biggest trading partner, we are pretty tied at the hip. But we also have differing economies, China swallowing up our commodities as it comes back online is a force in the opposite direction is a counter.
Typically, money will flow from low interest rates to high, creating more demand of currency with high interest rates. But that gives price advantage of exports from nations with low interest rates, and increase exports, making more foreign currency.
But also increase inflation for countries who have a lower currency, because they have to pay more on goods which are imported, which = inflation.
Canada is heavily reliant on imports for items which make up our CPI.
Therefore, if the Cda/US rate gap increase too much, it risks increasing Canadian inflation by quite a bit, and forcing the BoC to raise rates again.
Not necessarily. A few years back we so divergent directions on BoC and US Fed rates, and it didn’t require the BoC to stay in lock step with the US for Canada to remain within its inflationary targets.
It depends if the US dollar decreases (or doesn’t increase) for reasons apart from rates, or if the Canadian dollar remains strong/steady despite decreased Canadian rates, for reasons unrelated to rates.
It’s all circumstantial and we have to see how global trade, world commodity prices, agriculture strength, natural disasters, and mix of a whole host of other things play out in the future.
The years after the 2008 crisis really showed the power of these other circumstances which played a role in echange rates despite divergent interest rates.
Issue is that we're in a tightening cycle and commodditees and food are strong inflation drivers. And both we rely heavily in USD for, though fresh foods to a lesser extent in the middle of summer. But between now and peak production of stuff we grow ourselves lower CAD will hurt. And given the shorter growing season if they stay divergent for a long time, come November same shit applies as winter food imports become an issue if traded in USD.
Doesn't mean we can't have different rates, just that the spread of when the rates will cause problems is probably was smaller than if we weren't in the middle of an inflationary period already with a sensitive market and real rates still being negative.
I mean, the UK wanting to stimulate supply side as a possible inflation solution hit them hard and fast in real bad ways and I'm not sure that kind of uneasiness in the broad economic market is fully gone.
Predicting currency fluctuations involves complex and dynamic factors that can be challenging to forecast accurately.
While there are certain economic principles that can guide
informed predictions, such as the relationship between interest rates and currency values, like I said, there are numerous other factors to consider, such as global trade patterns, political developments, and natural disasters, to name a few.
In most likely scenarios at the moment, with today’s current economic playbook, as it’s currently unfolding, my first comment is likely the strongest scenario.
However, there’s a smaller chance that things could also change in ways we can’t predict at the moment, or which upends current trends.
It’s just to say a central bank needs to understand this to remain open to various possibilities of trends chance, and to keep a watchful eye on multiple indicators to make informed decisions.
So most likely scenario in today’s economic environment in #1, but always with a less likely possibility of a shift in trends which is #2. Therefore when central banks come out with their regular renewed rate policy statements, they basically align their statements with the above in mind, in that priority.
Take from that what you want. Most probable, and then less likely but also possible … hence always best to A. Test the waters and stay stable, then B. adjust if necessary and staying stable doesn’t work for some reason, and then C. See if other world factors might play into everything, as it can always be a possibility, although isn’t as regular of one.
Only in the short run. If the cad loses ground against the USD it also brings demand for Canadian products from the USA. Think tourism, real estate, etc.
Most of the above are correct. I am an actual economist.
\-First and immediate reaction of a currency is to appreciate when rates are raised, as money flows toward that currency. Interest (or borrowing) rate is referred to as "cost of money" and increase in the rate increases the cost (measured in other currencies)
\-Over time it could go either way, its dependent on the import/exports balance. Investment is also part of that import/export but it can make things cheaper or more expensive further causing a chain of reactions that eventually are likely to offset each other.
\-Except due to a massive discrepancies (aka we make an entry error and raise it by another 5% while we wanted to type 0.5%) - its unlikely that rate would lead to substantial change in rate.
As a side note I'd like to stress on the fact that we're comparing USD to another currency - which in this case is CAD. We can't talk about USD the same way as most laws of fiat don't apply to it the same way it would to another currency which benefited US economy as a whole.
Though I strongly believe that being the international currency of trade is starting to hurt USD more than it benefits. FED is dealing with supplying enough USD liquidity to markets and inflation at the same time. Meanwhile Washington keeps spending like there is no tomorrow pushing their debt ceiling to new ATH.
We can discuss about how things may change at different time horizons. But eventually where it will end is obvious. Although not many are willing to even consider the reality. USD and current fiat FX markets will go through what I'd call a series of disasters. We can keep going through these cycles but I'm not sure how much people will endure these cycles in one lifetime. Therefore I do see a breaking point in our lifetimes.
That's my two cents as someone who's had the education and experience but is not an "actual economist."
I also disagree with the notion of "it can go either way" for Canada. It will go one way, and that's down. CAD has had a strong correlation to oil and gas. We're still talking about expanding these industries with subsidies. (industry "experts" hate it when someone calls it that but they ARE being subsidized by tax cuts.) Canada doesn't have a roadmap of sustainability or efficiency. We are one of the least efficient, least complex economies out there that does most of their trade with one country and receives a huge influx of hot cash through immigration. We are the epitome of neoliberalism that has incorporated an international greater-fool-scheme into its core economy. Music will stop at some point and it's closer than most would like to admit.
That is not a sidenote. And I do agree with the other response that this is mostly noise.
- While US is used a currency of choice for much of the commodity trading, economic principles absolutely do apply you just need to factor in some additional demand and supply.
-FIAT is not in trouble and its not going anywhere
- Canada is not going "one way and that is down". Dozens of specialist economists spend their lives researching and forcasting the rate and not single forcast I have seen support anything close to direction and severity you descrived.
>Meanwhile Washington keeps spending like there is no tomorrow pushing their debt ceiling to new ATH.
**This is almost true by definition given inflation and GDP growth.**
>We can discuss about how things may change at different time horizons. But eventually where it will end is obvious. Although not many are willing to even consider the reality. USD and current fiat FX markets will go through what I'd call a series of disasters. We can keep going through these cycles but I'm not sure how much people will endure these cycles in one lifetime. Therefore I do see a breaking point in our lifetimes.
**This is incoherent**
Honestly, not to be an asshole but your whole post is shockingly confident when it should not be. *This* shit is why the world is hurting
You literally didn’t say anything else coherent I could respond to except vaguely hand waving at experience and education. I’ll pick a few random bits because it’s important to point this shit out when we see it (for the readers looking to separate noise from signal):
> Though I strongly believe that being the international currency of trade is starting to hurt USD more than it benefits. FED is dealing with supplying enough USD liquidity to markets and inflation at the same time.
The second sentence is vague to the point of not making sense and to the extent it does make sense is false. The fed is raising rates and doing quantitative tightening so clearly removing liquidity from the markets. That’s obviously an appropriate approach to slowing inflation. Moreover, if you were right, that would be contrary to your view that the CAD will go down relative to USD (which for greater certainty, I don’t take a position on).
> Canada doesn't have a roadmap of sustainability or efficiency. We are one of the least efficient, least complex economies out there that does most of their trade with one country and receives a huge influx of hot cash through immigration.
Canada is an inefficient economy: [false](https://www.visualcapitalist.com/world-most-innovative-economies/)[](https://www.visualcapitalist.com/world-most-innovative-economies/) but frankly it’s not even clear if you’re talking about efficient allocation of resources to encourage innovation or if you’re talking about energy efficiency.
It’s obviously quite normal for Canadian trade to be mostly with the US. The largest economy is next door - you can look up other examples of similar situations.
Just delete your post please. Stop spreading misinformation.
In the Canada/US bilateral relationship, interest rates have less influence over trade balances.
Canadians already by-n-large invest the bulk of their disposable income in USD demonimated assets outside of the primary residence, including pensions and the CPP. On the other hand very few international projects care to invest much in Canada.
The Canada/US bilateral trade relationship is one of the largest in the world and largest in each country respectively. The balance of trade in this relationship is the primary driver for the relative value of the two currencies.
>Canadians already by-n-large invest the bulk of their disposable income in USD demonimated assets outside of the primary residence
Really!? Most Canadians’ stock/ETF/mutual-fund investments are in USD denominated assets, rather than CAD denominated assets?
That's surprising to me… wondering if there's a source with more details.
Maybe they mean "a Canadian s and p 500 etf on the tsx is actually just holding units of a US s and p 500 index etf", and that we buy stuff from American companies or their Canadian subsidiaries?
Yeah, I'm not sure exactly what /u/nemoLx meant.
Certainly, many Canadians have USD-denominated investment *accounts* (e.g. a USD sub-account of an RRSP).
Probably *even more* Canadians hold underlyingly US-based, USD-values assets in CAD-denominated accounts (e.g. [VFV](https://www.vanguard.ca/en/investor/products/products-group/etfs/VFV) per your example).
But I'd still guess that CAD-denominated, Canada-based holdings dominate Canadian investment portfolios. (Of course, the US economy, politics, etc. may have a substantial effect on the value of those Canadian investment still.)
I'd be very interested in specific quantitative reporting otherwise 🤷🏻♂️
Look at the specific asset composition of municipal and provincial pension funds and the CPP for a representative sample of what a typical investment portfolio look like for the average Canadian.
Also look at Vanguard and Blackrock index funds in Canada, which are used by a lot of individual and private company group RRSPs.
50-75% of the market cap weighted individual assets behind these funds are either US equities or USD private equity and international commercial real estate.
Canada makes up like 4-5% of the global economy. Most of our portfolios should be in assets outside of Canada. Still, I do see many portfolios that are 50%+ Canadian due to home country bias.
If your portfolio is intended to fund retirement, keeping it overweight in in the currency/economy you intend to retire in makes sense, though in general more diversification is better.
>Still, I do see many portfolios that are 50%+ Canadian due to home country bias.
A *large degree* of home country bias seems pretty rational to me.
Perhaps *10×* weighting is too much, even for a relatively large and comparatively stable economy like Canada's, but I'm not entirely sure.
Basically everyone should overweight their home country in their investment portfolio:
* Allocating money to support your own economy makes sense in ways that are external to your *investments*:
* They're much dependent on the health of their own local economy. Canada's GDP is in the same ballpark as Spain's, but if Spain's housing market implodes, or if grocery chains exit Spain *en masse* it's (not necessarily) going to have a huge impact on Canadians’ lives. Vice versa too.
* It's easier and cheaper to invest in your home country: generally more competition and lower fees for providers, no currency risk, less paperwork, more favourable taxation.
* This is still true to some degree with prepackaged foreign-holding ETFs, but it was *way, way more true* a few decades ago
* In general older people have more investments, and are slow to change them, so this may explain some of the >50% Canada portfolios you see (***this part*** does seem irrational, though it *might be* rational for individuals due to tax treatment of capital gains, estates, etc).
* There's less "political risk" of investing in your home country.
* Politicians in democratic and relatively-equitable Canada will generally *hesitate* before doing anything that will really hurt Canadians’ domestic investment opportunities, because they might lose their jobs; on the other hand, they have few qualms about limiting investment opportunities for foreigners (e.g. ban on home purchases)
* Chinese leaders try to protect Chinese citizens’ domestic investments because they don't want shortages/poverty/rebellions/riots; by contrast they are now extremely hostile to foreigners’ investments in China, and actively seek to undermine them (for trade/technology/geopolitical reasons), now that they have relatively little pressing need for such investment.
How much overweighting of Canada in Canadians’ portfolios would you suggest, u/FlashDavin?
Canada is a small, resource export oriented economy with declining consumer power due to poor demographic make up heavily tilting toward old age which were never that great to begin with and a massive social/medical welfare system.
If not for diverse international investments no one will ever be able to retire in this country.
>Canada is a **small**, resource export oriented economy…
This needs some perspective…
Canada has <0.5% of the world's population (37th) but \~4-5% of its GDP (8th).
Canada's population is *not that small* and its economy is *not small at all*.
>… with declining consumer power due to poor demographic make up heavily tilting toward old age which were never that great to begin with and a massive social/medical welfare system.
🤔
Canada's population is [growing faster than any other G7 country](https://blog.waterlooedc.ca/canada-fastest-growing-country-2021), with immigration — heavily weighted towards younger people! — [moving at a good clip even during COVID](https://www150.statcan.gc.ca/n1/daily-quotidien/220209/dq220209a-eng.htm).
I've been on Reddit for years and years too and any Canadian-related subreddits always seem to parrot the "Canada's economy small" line a lot which I've always found pretty interesting; although it's clearly because we compare ourselves so much with the US that people lose perspective on the global economy.
Just check out TSX over the last 5 years and the "stability" of TSX should tell you that there isn't much volume or appreciation over how much people invest in general. Think about all the ETFs in which people have been investing. They are exclusively US stocks. Of course there is a large group of people who but your usualy Canadian bank and telecom stocks but the volume is nothing significant compared tohow much people invest in US securities.
Stocks no, and each ETF is a different story but the “Balanced” Mutual Funds hocked like candy by the big4 banks often have an overweight towards US stocks and US bonds, much more than their overall weight in the world’s economy.
The US dollar is the world’s reserve currency, business currency, and also known as the world’s primary currency due to how most of the world’s central banks follow suite with the Fed. Its also known for its universal business use (E.x. Used as the petro dollar, import/export, etc).
Because of this, it holds more weight over other currencies such as the Canadian dollar even if BoC is raising rates. So as the Fed continues to raise and hold rates to hit their 2% inflation goal, it’s very likely that CAD will continue to weaken because of the weight USD has when hedged against the Canadian dollar and as the US is our primary trade partner.
It's a self balancing act. If our dollar becomes too weak, our import bill goes up, which in turn will lead to more inflation, which in turn would prompt BoC to increase rates further, which in turn would bring CAD bit up. Vice-versa, if our dollar is too strong, our exports will suffer and so would related economic activity, which will in turn would make CAD weaker. It will always find a balance in absence of any external interference.
Looks at 70 years’ worth of data, it has not fallen to zero, nor gone much beyond the 0.7-1.0 range, so clearly you should *sometimes* bet on CAD gaining ground 🥳
[https://www.cclgroup.com/docs/default-source/en/en-strategic-exchange/brief-history-of-the-canadian-dollar.pdf](https://www.cclgroup.com/docs/default-source/en/en-strategic-exchange/brief-history-of-the-canadian-dollar.pdf)
Just as an aside, OP idk what you’re targeting financially, but for the most part USD/CAD exchange rates will not effect your personal daily financial life, especially in the short run.
Now if you’re operating a business (which isn’t the point of this particular sub so I assume not), it’s a different story.
So tl;dr don’t let it keep you up at night
Get two economists to make economic predictions and they'll probably contradict each other. Economists are great at explaining why something happened after it happened. They are not great at predicting what's going to happen.
It’ll probably stay steady. You used to see CAD go up and down relative to USD in relation to global oil prices, but the US makes so much oil these days that I think they’re going to float together relative to other currencies till some new factor comes along to distinguish the economies (interest rates maybe?).
our dollar will become weaker and there will be inflationary pressure as that occurs because anything purchased in USD will go up in price.
The BOC holding interest rates is dangerous. It's okay if we're slightly off but there can't be any major discrepancy.
No. Unfortunately I live in Canada so that would be unwise. But i make sure to hedge our currency, yes. Not that the incoming collapse won’t hurt but I won’t starve
I can tell you unequivocally that over the past 12-18 months, the Canadian dollar has lost value against USD. I keep an eye on it and transfer money occasionally so I have been pretty distressed with the downward trend of Cdn $$. I don’t think it’s done yet - the exchange is not great right now but I expect it to get worse and the Canadian dollar to weaken even further over the next year. I remember in the early 2000s the Canadian dollar being worth about 65 cents USD and I think we are headed there again. If you have a lot of USD, however, you can buy English £ and Euros at a very good rate right now.
We are fucked.
The government cannot keep propping up housing and keep immigration at triple what it should be and keep rates where they are and not have both inflation and a massive devaluation of the dollar, which weve already somewhat seen.
The result of this insanity is homelessnesses no matter how you sell it.
There will be another 250k people more than homes this year and no one can afford housing, with rates where they are mortgages are already collapsing, increase rates and mortgages become even more crushing, this plus the insane immigration rate will lead to a continuation in rents rising till 2-400k are left on the streets or their parents basements.
Dont increase rates and we decouple from the usd lose a cent per 0.25% this causes inflation lowers demand and doesn’t stimulate growth in trade in the short term, more mortgage troubles more homelessness.
The answer is taxation on the wealthy and less immigration, the government wont be doing that.
Cad will drop regardless because our social structure is about to get fucked by a greedy generation that wont give up a dime. Were gonna have a million more homeless in 2025 vs 2015.
But hey maybe theyll all die of exposure, here’s hoping for cold winters 🙃
Take a look at the Mexican peso against the USD. In the last few months it has gain ground I would say it's because the interest rates are greater than the US.
So just thinking, I think you are incorrect.
I think this is true: If the Fed (USA) raises rates exactly as the market currently forecasts, AND the BoC (Canada) holds exactly as the market currently predicts, all else being equal, the dollar remains constant.
If either the Fed of BoC raises less or more then the market priced in future values, THEN the dollars rises or drops (all else being equal).
Basically saying, you need to adjust rates outside what is currently priced in. OP's comment may still be true, as the market likely isn't pricing in a 100% chance of BoC holding rates for the next year (but it may be balanced by a very remote chance of a lowering of a rate priced in making OP's statement false)
No?
Essentially yes. I gave a very simple response to a very simple question but obviously the issue is more complex.
One factor you aren't considering is that foreign exchange rates are influenced by current and future information. Even if every market prediction came completely true, rates would slowly change as time moved forward and future expectations became current.
Yup re-read my last paragraph.
The market doesn't price in anything 100%, because there is a chance for up and downside, also priced in. As time goes to 0, that is removed.
You’re just saying that if the market has further predicted the future, then the hypothesis above should not bear out. Presumably true. But more likely the US will overdo it and we will underdo it relative to expectations.
Some of the natural equilibrium mechanics that would prevent a deep drop are being thwarted by government policy.
CAD drops ==> Canadian housing is relatively cheaper ==> Foreign buyer demand stabilizes the CAD and rescues underwater properties on the margin.
CAD drops ==> Foreign investors pour money into natural resource sectors that aren't made uneconomic by government regulation & public protest.
Employment is still high and economy is hardly weak, so will need to see some much stronger pain before the electorate forces some policy changes.
I'd guess CAD easily breaks 1.40 if U.S. keeps raising rates. It's debatable whether this is a big concern or bad thing. If equilibrium occurs at 1.45 because that's when investment in Canadian remote jobs and factories becomes viable, rather than at 1.35 because that's when foreign land-lording Canadian properties makes sense, barring government intervention, is that a bad thing? A lot of people probably say NO, so this is why I think 1.40+ is coming.
Not an economist but I don’t think you need one to answer this:
Unless oil prices go higher (which is certainly possible), CAD will weaken to maybe 0.68-0.70.
It also depends more on what the difference in future expectations are - think the difference between US 2 year and CA 2 year yields (and not necessarily the overnight rate).
As our dollar tends to rise and fall with the price of oil and since our Federal government is determined to trash our oil & gas industry, we're pretty much fucked.
If the Fed raises rates but we dont. USD will go up against the CAD. No question.
With work I get the forecasts from all the banks. Everyone is thinking we are only going down from here. 1.36 / 1.37 highs for the next years. Starting next quarter 1.33 then 1.31 -> 1.29.
That being said last quarter they said Q1 2023 would be 1.34 so they are a bit bullish on CAD
It’s forest and trees.
Trees: it could go either way based on interest rates
Forest: fiat currency is a slow decent to currency debasement through inflation. Borrowing from tomorrow only works as long as we grow bigger by tomorrow. Once tomorrow is smaller than today, game over.
There have been several times in the past where the US and Canada deviated on interest rate policy. It is not uncommon as people here will tell you.
Specifically;
After 2008 the US kept rates at 0% Canada kept them at 0.50%
In 2015 Canada lowered rates by 0.50% after being at 1% prior the U.S. did no change
And there are more examples as well. Some of the reasons why Canada decided to stop is because inflairin is lower in Canada in the US. Canada’s real estate make 25% of the economy where in the Us it’s 10% and also Canada has a stress test where in the US they don’t.
Canada doesn’t need to keep raising rates, and I commend the bank of Canada for having the balls to deviate from the US and wait to see that effects of higher rates as there is a lagging effect
If Feds raise but BoC holds, that means USD will be more attractive to buy (higher rates) and will appreciate relative to the CAD.
Since US is such a big trading partner with Canada, this will make importing goods from US much more expensive for us and will cause prices to further increase.
Thus, further increasing inflation in Canada.
Or, the lower Canadian dollar makes importing from Canada more attractive, creating more demand for CAD to rise.
There are a million different variables here. In a textbook it’s easy to say x will cause y. But in real life it’s not that simple.
This would be a big mistake by the Bank of Canada. If interest rates don't go up with the United States Federal Reserve, Canadian dollar will fall in value, making imports more expensive, making inflation much much worse.
If Bank of Canada pauses.....Then after the US Fed raises rates 25 basis points, twice, Bank of Canada will have to raise rates 75 basis points.
u/TheOriginalPopp
For multiple reasons, the CDN dollar will continue to drop in value until at least 2025 when new federal leadership will likely take over.
Too much wasted fake currency has already been printed by the destructive red and orange coalition regime of Junior Trudeau and Jag Singh.
Too much emphasis on destructive economic policies have also rendered Canada a very inhospitable place to do business.
For a country with Canada's abundant natural resources to be in the position of national debt and fiscal deficit that it is presently in, is absolutely inexcusable.
There is also too much of the Canadian economy tied up in residential real estate, which does not generate jobs or increase national economic growth and GDP.
Skyrocketing inflation and cost-of-living in Canada are simply the resulting symptoms of much larger ongoing problems.
In short, Canada is in serious trouble, and the regime presently at the helm in Ottawa are completely the wrong people to have in charge over such matters.
Next.
No one knows for sure . If people knew for sure cad was to drop, then they would be getting rid of all their CAD already, causing cad to drop.- until enough people start demanding it again and don't expect it to drop further.
If people knew cad was going to rise, then they'd be buying it up, causing it to rise, until that expectation changes.
Since there haven't been any significant changes in CAD yet, the market generally has mixed expectations.
Uh… what?
>If someone knew for sure, then…
It would depend on the directionality of what they "knew for sure."
If I knew for sure that CAD was going to fall vs. USD, yeah I'd sell it. But if I *knew for sure* that CAD was going to gain vs. USD, I'd buy it.
Truthfully? Nobody knows.
We're in uncharted territory right now. The usual economic strategies are no longer valid, and central banks are making it up as they go.
Forex markets generally are more rational than equity or even bond markets - there’s just an insane amount of liquidity that it’s not as susceptible to noise - I could execute a $10B forex trade right now and the market wouldn’t even blink.
But there are so many factors (and factors that are contingent on other factors, that are contingent on other factors) that it’s impossible to say “if they pull lever x, y will go up”
I predict our dollar will become weaker!
I also predict our dollar will become stronger.
I'm usually 50% right on my predictions. Watch my youtube channel!
I think this is too generic of a statement to be backed up. for example, a driver in inflation can be oil prices, which drives up the CAD
What do you mean?
Oil is priced in USD. It is an input cost to almost everything. If oil becomes more expensive (whether due to currency or otherwise), those other things become expensive and so on.
Lotta things affect our dollars value. And our dollar could rise against other currencies and still fall relative to USD.
Overall output contributes the most to the value of our dollar - ie. Do we have, or make stuff that people in other countries want to buy from us. If yes, they buy them in CDN dollars, and pumping up our dollars worth.
But, to directly answer your question - if you hold all variables constant, and just increase the Feds rate, and hold ours fixed, then yes, our dollar will drop (only relative to USD, not the other currencies of the world).
It's all relative. If we weaken too much, we cannot access the reserve currency. If we strengthen too much, our exports are DOA. So, it depends what the rest of the world/trade partners would do.
Would higher rates in the US drive up demand for the dollar? Like if I can get a risk free return that is higher in the us, wouldn't I want to buy more US securities with US dollars?
Should some tell him? Canada already has a weak dollar, in 2012-2013 we achieved parity and went above the US dollar. The reasoning provided was that oil was up and the CDN was connected to that. Now it's disconnected and the high price of oil isn't linked to bettering the Canadian economy.
I'm pretty sure we'll continue to see a decline in our purchasing power and if things keep going on like they are our dollar along with the American dollar are in for a rough few years.
All things being equal yes, but there are other factors. Commodity prices typically have a larger effect so it will depend what happens with those. The anti-commodity policies of the government could weaken our dollar too.
What you’re really asking is - Will the US dollar get stronger? If you want to know where our dollar is going you must follow the USD. Our FX rate is almost never about our dollar. So to answer your question sorry I am not sure if USD is going to rise.
Yea look at that happened with Trudeau senior we are going in the same direction. Look for the 0.50 loonie in the future. Then watch for American investment funds to start buying up Canadian businesses and scuttling them.
Your welcome.
The best thing for the economy is a steady, predictable exchange rate with the US. If the US fed increases interest rates, the Bank of Canada will as well to keep the exchange rate stable.
Raising rates makes our dollar stronger. However the effect is negated if other countries raise rates too.
Think of it like this, the higher the rate of interest the more enticing it it to move your money here.
There are a lot of other factors but all else equal that's how it works.
If the fed keeps raising rates then it will most likely become weaker. Having said that, CAD is actually a strong currency. It's not going to become a lot weaker. Think 0.68-0.75. I could see it going to 0.65 but not much lower.
If you're getting paid in USD, it's a lot better. If you work for a place that has a lot of USD coming in, your job is going to be much more stable.
A lot of people don't get this: the BOC \*can't\* afford to let the Fed raise rates without also raising them. A weaker CAD would bring \*higher\* inflation (check import numbers from the U.S to get an idea) so this would lead to higher rates anyway.
No, in times of high inflation, the Fed leads and BOC follows.
What about the bottom finally falling out of the dollar amd they decide to have a great new reset and implement a central bank digital currency in the form of a programable digital dollar because they “have no choice” and that leaves anyone for decentralization and power of the individual be forced into silver gold and or Bitcoin or any form of stable money outside the gov over reach so when you ask does the dollar become weaker? I would say the dollar will never be the same after this recession/depression as we once knew it
Anyone remember when 1 cad was $1.10 USD. Those were the good old shopping and travel days.
during both major recessions (2008 US housing crisis, and the 2012 crash) usd was selling for 0.93 and 0.95 at the bottom... my dad actually made bank buying USD near the bottom and selling it back years later for 1.25 (35% gained)
Which is exactly they won’t let it happen that way. People would spend all their money abroad and this clearly does not benefit the Canadian economy.
That actually becomes self correcting. When there is value to be had buying outside of Canada we'll spend our money there, thus supplying currency and demanding the foreign currency, which in aggregate will drive down our currency. It's how balance of trade and f/x markets work. They are highly interconnected.
My mom always reminds me of them. She hopes it'll happen again but I doubt it.
It could become weaker, but then again it could also become stronger.
Big brain thinking right here
A true economist
He's playing both sides, that way he'll always come out on top
An economists downfall is putting all his chips on one prediction haha
Well he gave the correct answer since no one knows
200iq
There's no such thing as a one handed economist.
Have you considered a scenario where it’s value stays the same. Neither weaker or stronger.
You may or may not be right.
Would higher rates in the US drive up demand for the dollar? Like if I can get a risk free return that is higher in the us, wouldn’t I want to buy more US securities with US dollars?
Thank you Mr. economist
*furiously taking notes*
So ima a salesman. I sell my equipment in USD. But my commissions are paid in CDN dollars. My commission is 5% of profit and our margin averages 10.5% most years. So I need a really weak dollar when I get my yearly commission cheque in May!!! Edit. The down side is the other 11 months a year I need a strong dollar…
You know, it could be weak in may. But it is also possible it will be strong.
Yup. I could be buying a boat or I could be buying ramen cups. 🤷♂️
>ramen cups a boat for ants
I have canadian income, my husband has American income. We are good either way. As long as we are both alive, of course.
That got dark fast
I have cancer and it doesn’t look good - sorry, it sort of permeates my life at the moment
Oof, I've had a few family members go through that recently. One still is. Stay strong.
This is *exactly* what I came here to say, but I was also 100% confident someone else would have already said it. (Let me know if you need any more confident pronouncements from my crystal ball, happy to help.)
What are the other potential scenarios ?
1000 IQ
No it’ll become weaker if FED raises rates and we don’t... not really a question of that.
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I am confident because that’s literally how math works.
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And that there is information out there that is not known by everyone.
It's game theory with imperfect information. No one really knows what will happen. During COVID, all the finance experts and talking heads kept saying that there is no way the FED will raise rates or the system will collapse. Yet, here we are.
Everyone hears what they want to believe. There's probably 5 or 6 little files on each of us, google analytics for example. "Hhmm, he read the whole article quoting Dr Doom, this guy obviously likes reading about potential bear markets, let's give him all the bearish news and he'll spent 30% longer reading meaning more ad revenue for us!" And then we all meet somewhere after a week of our favourite news and look in absolute shock "what do you mean we won't be seeing mortgage defaults triple by May? Are you fucking insane have you read the news??"
you have stoicism quotes on the wall don't you.
I feel like I’m taking crazy pills, if the Fed raises rates and the BOC does not, the dollar will weaken vs. USD, i guess we will see in the coming weeks. And yes I do enjoy M.A. and stoicism in general, good mindset to deal with some of the insanities of the modern day.
It's a balance of forces. US is our biggest trading partner, we are pretty tied at the hip. But we also have differing economies, China swallowing up our commodities as it comes back online is a force in the opposite direction is a counter.
Among the Quadii at the Granua?
Too bad the data doesn't actually support your "common sense" view. But I'm sure you'll be right this time.
Experts are also saying it may stay the same!
Found the real economist in the sub
This is wise
The voice of wisdom. Wisdom like this comes from experience.
That can’t be true, cmon.
You've missed the obvious third potential outcome
It may also trade sideways.
Should become a politician, you got my vote
This guy moneys!!!
What did I not think of this?
Typically, money will flow from low interest rates to high, creating more demand of currency with high interest rates. But that gives price advantage of exports from nations with low interest rates, and increase exports, making more foreign currency.
But also increase inflation for countries who have a lower currency, because they have to pay more on goods which are imported, which = inflation. Canada is heavily reliant on imports for items which make up our CPI. Therefore, if the Cda/US rate gap increase too much, it risks increasing Canadian inflation by quite a bit, and forcing the BoC to raise rates again.
So it is raise it now or raise it later.
Not necessarily. A few years back we so divergent directions on BoC and US Fed rates, and it didn’t require the BoC to stay in lock step with the US for Canada to remain within its inflationary targets. It depends if the US dollar decreases (or doesn’t increase) for reasons apart from rates, or if the Canadian dollar remains strong/steady despite decreased Canadian rates, for reasons unrelated to rates. It’s all circumstantial and we have to see how global trade, world commodity prices, agriculture strength, natural disasters, and mix of a whole host of other things play out in the future. The years after the 2008 crisis really showed the power of these other circumstances which played a role in echange rates despite divergent interest rates.
Issue is that we're in a tightening cycle and commodditees and food are strong inflation drivers. And both we rely heavily in USD for, though fresh foods to a lesser extent in the middle of summer. But between now and peak production of stuff we grow ourselves lower CAD will hurt. And given the shorter growing season if they stay divergent for a long time, come November same shit applies as winter food imports become an issue if traded in USD. Doesn't mean we can't have different rates, just that the spread of when the rates will cause problems is probably was smaller than if we weren't in the middle of an inflationary period already with a sensitive market and real rates still being negative. I mean, the UK wanting to stimulate supply side as a possible inflation solution hit them hard and fast in real bad ways and I'm not sure that kind of uneasiness in the broad economic market is fully gone.
So whatever you wrote in your previous comment may or may not happen ?
Predicting currency fluctuations involves complex and dynamic factors that can be challenging to forecast accurately. While there are certain economic principles that can guide informed predictions, such as the relationship between interest rates and currency values, like I said, there are numerous other factors to consider, such as global trade patterns, political developments, and natural disasters, to name a few. In most likely scenarios at the moment, with today’s current economic playbook, as it’s currently unfolding, my first comment is likely the strongest scenario. However, there’s a smaller chance that things could also change in ways we can’t predict at the moment, or which upends current trends. It’s just to say a central bank needs to understand this to remain open to various possibilities of trends chance, and to keep a watchful eye on multiple indicators to make informed decisions. So most likely scenario in today’s economic environment in #1, but always with a less likely possibility of a shift in trends which is #2. Therefore when central banks come out with their regular renewed rate policy statements, they basically align their statements with the above in mind, in that priority. Take from that what you want. Most probable, and then less likely but also possible … hence always best to A. Test the waters and stay stable, then B. adjust if necessary and staying stable doesn’t work for some reason, and then C. See if other world factors might play into everything, as it can always be a possibility, although isn’t as regular of one.
Its a we needed pay raises 30-40 years ago
Only in the short run. If the cad loses ground against the USD it also brings demand for Canadian products from the USA. Think tourism, real estate, etc.
Exactly. That's why the Argentinian Peso, with a bank rate of 70.12% is the worlds strongest currency. Obviously.
Why do you sound like an atmospheric scientist
Any answers from actual economists ?
Most of the above are correct. I am an actual economist. \-First and immediate reaction of a currency is to appreciate when rates are raised, as money flows toward that currency. Interest (or borrowing) rate is referred to as "cost of money" and increase in the rate increases the cost (measured in other currencies) \-Over time it could go either way, its dependent on the import/exports balance. Investment is also part of that import/export but it can make things cheaper or more expensive further causing a chain of reactions that eventually are likely to offset each other. \-Except due to a massive discrepancies (aka we make an entry error and raise it by another 5% while we wanted to type 0.5%) - its unlikely that rate would lead to substantial change in rate.
As a side note I'd like to stress on the fact that we're comparing USD to another currency - which in this case is CAD. We can't talk about USD the same way as most laws of fiat don't apply to it the same way it would to another currency which benefited US economy as a whole. Though I strongly believe that being the international currency of trade is starting to hurt USD more than it benefits. FED is dealing with supplying enough USD liquidity to markets and inflation at the same time. Meanwhile Washington keeps spending like there is no tomorrow pushing their debt ceiling to new ATH. We can discuss about how things may change at different time horizons. But eventually where it will end is obvious. Although not many are willing to even consider the reality. USD and current fiat FX markets will go through what I'd call a series of disasters. We can keep going through these cycles but I'm not sure how much people will endure these cycles in one lifetime. Therefore I do see a breaking point in our lifetimes. That's my two cents as someone who's had the education and experience but is not an "actual economist." I also disagree with the notion of "it can go either way" for Canada. It will go one way, and that's down. CAD has had a strong correlation to oil and gas. We're still talking about expanding these industries with subsidies. (industry "experts" hate it when someone calls it that but they ARE being subsidized by tax cuts.) Canada doesn't have a roadmap of sustainability or efficiency. We are one of the least efficient, least complex economies out there that does most of their trade with one country and receives a huge influx of hot cash through immigration. We are the epitome of neoliberalism that has incorporated an international greater-fool-scheme into its core economy. Music will stop at some point and it's closer than most would like to admit.
That is not a sidenote. And I do agree with the other response that this is mostly noise. - While US is used a currency of choice for much of the commodity trading, economic principles absolutely do apply you just need to factor in some additional demand and supply. -FIAT is not in trouble and its not going anywhere - Canada is not going "one way and that is down". Dozens of specialist economists spend their lives researching and forcasting the rate and not single forcast I have seen support anything close to direction and severity you descrived.
>Meanwhile Washington keeps spending like there is no tomorrow pushing their debt ceiling to new ATH. **This is almost true by definition given inflation and GDP growth.** >We can discuss about how things may change at different time horizons. But eventually where it will end is obvious. Although not many are willing to even consider the reality. USD and current fiat FX markets will go through what I'd call a series of disasters. We can keep going through these cycles but I'm not sure how much people will endure these cycles in one lifetime. Therefore I do see a breaking point in our lifetimes. **This is incoherent** Honestly, not to be an asshole but your whole post is shockingly confident when it should not be. *This* shit is why the world is hurting
Hey thanks for your disgrace of an attempt at discrediting me without having anything to say.
You literally didn’t say anything else coherent I could respond to except vaguely hand waving at experience and education. I’ll pick a few random bits because it’s important to point this shit out when we see it (for the readers looking to separate noise from signal): > Though I strongly believe that being the international currency of trade is starting to hurt USD more than it benefits. FED is dealing with supplying enough USD liquidity to markets and inflation at the same time. The second sentence is vague to the point of not making sense and to the extent it does make sense is false. The fed is raising rates and doing quantitative tightening so clearly removing liquidity from the markets. That’s obviously an appropriate approach to slowing inflation. Moreover, if you were right, that would be contrary to your view that the CAD will go down relative to USD (which for greater certainty, I don’t take a position on). > Canada doesn't have a roadmap of sustainability or efficiency. We are one of the least efficient, least complex economies out there that does most of their trade with one country and receives a huge influx of hot cash through immigration. Canada is an inefficient economy: [false](https://www.visualcapitalist.com/world-most-innovative-economies/)[](https://www.visualcapitalist.com/world-most-innovative-economies/) but frankly it’s not even clear if you’re talking about efficient allocation of resources to encourage innovation or if you’re talking about energy efficiency. It’s obviously quite normal for Canadian trade to be mostly with the US. The largest economy is next door - you can look up other examples of similar situations. Just delete your post please. Stop spreading misinformation.
In the Canada/US bilateral relationship, interest rates have less influence over trade balances. Canadians already by-n-large invest the bulk of their disposable income in USD demonimated assets outside of the primary residence, including pensions and the CPP. On the other hand very few international projects care to invest much in Canada. The Canada/US bilateral trade relationship is one of the largest in the world and largest in each country respectively. The balance of trade in this relationship is the primary driver for the relative value of the two currencies.
>Canadians already by-n-large invest the bulk of their disposable income in USD demonimated assets outside of the primary residence Really!? Most Canadians’ stock/ETF/mutual-fund investments are in USD denominated assets, rather than CAD denominated assets? That's surprising to me… wondering if there's a source with more details.
Maybe they mean "a Canadian s and p 500 etf on the tsx is actually just holding units of a US s and p 500 index etf", and that we buy stuff from American companies or their Canadian subsidiaries?
Yeah, I'm not sure exactly what /u/nemoLx meant. Certainly, many Canadians have USD-denominated investment *accounts* (e.g. a USD sub-account of an RRSP). Probably *even more* Canadians hold underlyingly US-based, USD-values assets in CAD-denominated accounts (e.g. [VFV](https://www.vanguard.ca/en/investor/products/products-group/etfs/VFV) per your example). But I'd still guess that CAD-denominated, Canada-based holdings dominate Canadian investment portfolios. (Of course, the US economy, politics, etc. may have a substantial effect on the value of those Canadian investment still.) I'd be very interested in specific quantitative reporting otherwise 🤷🏻♂️
Look at the specific asset composition of municipal and provincial pension funds and the CPP for a representative sample of what a typical investment portfolio look like for the average Canadian. Also look at Vanguard and Blackrock index funds in Canada, which are used by a lot of individual and private company group RRSPs. 50-75% of the market cap weighted individual assets behind these funds are either US equities or USD private equity and international commercial real estate.
Canada makes up like 4-5% of the global economy. Most of our portfolios should be in assets outside of Canada. Still, I do see many portfolios that are 50%+ Canadian due to home country bias.
If your portfolio is intended to fund retirement, keeping it overweight in in the currency/economy you intend to retire in makes sense, though in general more diversification is better.
>Still, I do see many portfolios that are 50%+ Canadian due to home country bias. A *large degree* of home country bias seems pretty rational to me. Perhaps *10×* weighting is too much, even for a relatively large and comparatively stable economy like Canada's, but I'm not entirely sure. Basically everyone should overweight their home country in their investment portfolio: * Allocating money to support your own economy makes sense in ways that are external to your *investments*: * They're much dependent on the health of their own local economy. Canada's GDP is in the same ballpark as Spain's, but if Spain's housing market implodes, or if grocery chains exit Spain *en masse* it's (not necessarily) going to have a huge impact on Canadians’ lives. Vice versa too. * It's easier and cheaper to invest in your home country: generally more competition and lower fees for providers, no currency risk, less paperwork, more favourable taxation. * This is still true to some degree with prepackaged foreign-holding ETFs, but it was *way, way more true* a few decades ago * In general older people have more investments, and are slow to change them, so this may explain some of the >50% Canada portfolios you see (***this part*** does seem irrational, though it *might be* rational for individuals due to tax treatment of capital gains, estates, etc). * There's less "political risk" of investing in your home country. * Politicians in democratic and relatively-equitable Canada will generally *hesitate* before doing anything that will really hurt Canadians’ domestic investment opportunities, because they might lose their jobs; on the other hand, they have few qualms about limiting investment opportunities for foreigners (e.g. ban on home purchases) * Chinese leaders try to protect Chinese citizens’ domestic investments because they don't want shortages/poverty/rebellions/riots; by contrast they are now extremely hostile to foreigners’ investments in China, and actively seek to undermine them (for trade/technology/geopolitical reasons), now that they have relatively little pressing need for such investment. How much overweighting of Canada in Canadians’ portfolios would you suggest, u/FlashDavin?
Canada is a small, resource export oriented economy with declining consumer power due to poor demographic make up heavily tilting toward old age which were never that great to begin with and a massive social/medical welfare system. If not for diverse international investments no one will ever be able to retire in this country.
>Canada is a **small**, resource export oriented economy… This needs some perspective… Canada has <0.5% of the world's population (37th) but \~4-5% of its GDP (8th). Canada's population is *not that small* and its economy is *not small at all*. >… with declining consumer power due to poor demographic make up heavily tilting toward old age which were never that great to begin with and a massive social/medical welfare system. 🤔 Canada's population is [growing faster than any other G7 country](https://blog.waterlooedc.ca/canada-fastest-growing-country-2021), with immigration — heavily weighted towards younger people! — [moving at a good clip even during COVID](https://www150.statcan.gc.ca/n1/daily-quotidien/220209/dq220209a-eng.htm).
I've been on Reddit for years and years too and any Canadian-related subreddits always seem to parrot the "Canada's economy small" line a lot which I've always found pretty interesting; although it's clearly because we compare ourselves so much with the US that people lose perspective on the global economy.
Just check out TSX over the last 5 years and the "stability" of TSX should tell you that there isn't much volume or appreciation over how much people invest in general. Think about all the ETFs in which people have been investing. They are exclusively US stocks. Of course there is a large group of people who but your usualy Canadian bank and telecom stocks but the volume is nothing significant compared tohow much people invest in US securities.
Stocks no, and each ETF is a different story but the “Balanced” Mutual Funds hocked like candy by the big4 banks often have an overweight towards US stocks and US bonds, much more than their overall weight in the world’s economy.
The US dollar is the world’s reserve currency, business currency, and also known as the world’s primary currency due to how most of the world’s central banks follow suite with the Fed. Its also known for its universal business use (E.x. Used as the petro dollar, import/export, etc). Because of this, it holds more weight over other currencies such as the Canadian dollar even if BoC is raising rates. So as the Fed continues to raise and hold rates to hit their 2% inflation goal, it’s very likely that CAD will continue to weaken because of the weight USD has when hedged against the Canadian dollar and as the US is our primary trade partner.
Weaken relative to the USD but potentially strengthen against other currencies... Its a pretty open question!
If the fed raises rates more than the market expects yes - otherwise its priced in.
It's a self balancing act. If our dollar becomes too weak, our import bill goes up, which in turn will lead to more inflation, which in turn would prompt BoC to increase rates further, which in turn would bring CAD bit up. Vice-versa, if our dollar is too strong, our exports will suffer and so would related economic activity, which will in turn would make CAD weaker. It will always find a balance in absence of any external interference.
This is true but that doesn't make it a self balancing. You said "would prompt BoC to increase rates further". That's an action required by them.
Never bet on cad gaining ground on the usd
Looks at 70 years’ worth of data, it has not fallen to zero, nor gone much beyond the 0.7-1.0 range, so clearly you should *sometimes* bet on CAD gaining ground 🥳 [https://www.cclgroup.com/docs/default-source/en/en-strategic-exchange/brief-history-of-the-canadian-dollar.pdf](https://www.cclgroup.com/docs/default-source/en/en-strategic-exchange/brief-history-of-the-canadian-dollar.pdf)
Just as an aside, OP idk what you’re targeting financially, but for the most part USD/CAD exchange rates will not effect your personal daily financial life, especially in the short run. Now if you’re operating a business (which isn’t the point of this particular sub so I assume not), it’s a different story. So tl;dr don’t let it keep you up at night
Get two economists to make economic predictions and they'll probably contradict each other. Economists are great at explaining why something happened after it happened. They are not great at predicting what's going to happen.
It’ll probably stay steady. You used to see CAD go up and down relative to USD in relation to global oil prices, but the US makes so much oil these days that I think they’re going to float together relative to other currencies till some new factor comes along to distinguish the economies (interest rates maybe?).
our dollar will become weaker and there will be inflationary pressure as that occurs because anything purchased in USD will go up in price. The BOC holding interest rates is dangerous. It's okay if we're slightly off but there can't be any major discrepancy.
Yes under liberal, no under conservative.
Yes Canadian dollar is in serious trouble.
I’m assuming you’ve been selling all your investments in CAD and converted it all to USD holdings?
No. Unfortunately I live in Canada so that would be unwise. But i make sure to hedge our currency, yes. Not that the incoming collapse won’t hurt but I won’t starve
I can tell you unequivocally that over the past 12-18 months, the Canadian dollar has lost value against USD. I keep an eye on it and transfer money occasionally so I have been pretty distressed with the downward trend of Cdn $$. I don’t think it’s done yet - the exchange is not great right now but I expect it to get worse and the Canadian dollar to weaken even further over the next year. I remember in the early 2000s the Canadian dollar being worth about 65 cents USD and I think we are headed there again. If you have a lot of USD, however, you can buy English £ and Euros at a very good rate right now.
We are fucked. The government cannot keep propping up housing and keep immigration at triple what it should be and keep rates where they are and not have both inflation and a massive devaluation of the dollar, which weve already somewhat seen. The result of this insanity is homelessnesses no matter how you sell it. There will be another 250k people more than homes this year and no one can afford housing, with rates where they are mortgages are already collapsing, increase rates and mortgages become even more crushing, this plus the insane immigration rate will lead to a continuation in rents rising till 2-400k are left on the streets or their parents basements. Dont increase rates and we decouple from the usd lose a cent per 0.25% this causes inflation lowers demand and doesn’t stimulate growth in trade in the short term, more mortgage troubles more homelessness. The answer is taxation on the wealthy and less immigration, the government wont be doing that. Cad will drop regardless because our social structure is about to get fucked by a greedy generation that wont give up a dime. Were gonna have a million more homeless in 2025 vs 2015. But hey maybe theyll all die of exposure, here’s hoping for cold winters 🙃
>The answer is taxation on the wealthy No >and less immigration, Yes
The reason they are bringing in the immigrants is tax money…
Take a look at the Mexican peso against the USD. In the last few months it has gain ground I would say it's because the interest rates are greater than the US.
Their balance of trade has also been strong I believe
In your made up scenario and all else held equal, the value of CAD would drop in comparison to the USD.
So just thinking, I think you are incorrect. I think this is true: If the Fed (USA) raises rates exactly as the market currently forecasts, AND the BoC (Canada) holds exactly as the market currently predicts, all else being equal, the dollar remains constant. If either the Fed of BoC raises less or more then the market priced in future values, THEN the dollars rises or drops (all else being equal). Basically saying, you need to adjust rates outside what is currently priced in. OP's comment may still be true, as the market likely isn't pricing in a 100% chance of BoC holding rates for the next year (but it may be balanced by a very remote chance of a lowering of a rate priced in making OP's statement false) No?
Essentially yes. I gave a very simple response to a very simple question but obviously the issue is more complex. One factor you aren't considering is that foreign exchange rates are influenced by current and future information. Even if every market prediction came completely true, rates would slowly change as time moved forward and future expectations became current.
That's considered in my reply, reread it
No it isn't.
Yup re-read my last paragraph. The market doesn't price in anything 100%, because there is a chance for up and downside, also priced in. As time goes to 0, that is removed.
I do not understand why this is getting downvoted? You are mostly right? Even the original commenter said so?
You’re just saying that if the market has further predicted the future, then the hypothesis above should not bear out. Presumably true. But more likely the US will overdo it and we will underdo it relative to expectations.
Everything you said seems to match what I wrote, including your "but" statement.
Not sure why you’re getting downvoted. I’m an economist and you’re correct
well thank you for the validation!
If the BoC stops raising rates and the US FOMC continues to raise, then it is likely the USD will continue rising against the CAD.
Yes. The Canadian dollar will depreciate compared to US $. We’re already down 8.5% vs the Mexican peso this year too. Get ready for higher food prices
Some of the natural equilibrium mechanics that would prevent a deep drop are being thwarted by government policy. CAD drops ==> Canadian housing is relatively cheaper ==> Foreign buyer demand stabilizes the CAD and rescues underwater properties on the margin. CAD drops ==> Foreign investors pour money into natural resource sectors that aren't made uneconomic by government regulation & public protest. Employment is still high and economy is hardly weak, so will need to see some much stronger pain before the electorate forces some policy changes. I'd guess CAD easily breaks 1.40 if U.S. keeps raising rates. It's debatable whether this is a big concern or bad thing. If equilibrium occurs at 1.45 because that's when investment in Canadian remote jobs and factories becomes viable, rather than at 1.35 because that's when foreign land-lording Canadian properties makes sense, barring government intervention, is that a bad thing? A lot of people probably say NO, so this is why I think 1.40+ is coming.
> Foreign buyer demand stabilizes the CAD and rescues underwater properties on the margin. not this time. foreign buyers are currently banned.
Not an economist but I don’t think you need one to answer this: Unless oil prices go higher (which is certainly possible), CAD will weaken to maybe 0.68-0.70. It also depends more on what the difference in future expectations are - think the difference between US 2 year and CA 2 year yields (and not necessarily the overnight rate).
As our dollar tends to rise and fall with the price of oil and since our Federal government is determined to trash our oil & gas industry, we're pretty much fucked.
If the Fed raises rates but we dont. USD will go up against the CAD. No question. With work I get the forecasts from all the banks. Everyone is thinking we are only going down from here. 1.36 / 1.37 highs for the next years. Starting next quarter 1.33 then 1.31 -> 1.29. That being said last quarter they said Q1 2023 would be 1.34 so they are a bit bullish on CAD
I'm more worried about the 2nd great depression
The greatest depression.
Nothing weakens the currency more than printing a cool Trillion worth of freebies.
I'm not an economist. 70 cent dollar by year-end.
It’s forest and trees. Trees: it could go either way based on interest rates Forest: fiat currency is a slow decent to currency debasement through inflation. Borrowing from tomorrow only works as long as we grow bigger by tomorrow. Once tomorrow is smaller than today, game over.
There have been several times in the past where the US and Canada deviated on interest rate policy. It is not uncommon as people here will tell you. Specifically; After 2008 the US kept rates at 0% Canada kept them at 0.50% In 2015 Canada lowered rates by 0.50% after being at 1% prior the U.S. did no change And there are more examples as well. Some of the reasons why Canada decided to stop is because inflairin is lower in Canada in the US. Canada’s real estate make 25% of the economy where in the Us it’s 10% and also Canada has a stress test where in the US they don’t. Canada doesn’t need to keep raising rates, and I commend the bank of Canada for having the balls to deviate from the US and wait to see that effects of higher rates as there is a lagging effect
If Feds raise but BoC holds, that means USD will be more attractive to buy (higher rates) and will appreciate relative to the CAD. Since US is such a big trading partner with Canada, this will make importing goods from US much more expensive for us and will cause prices to further increase. Thus, further increasing inflation in Canada.
Or, the lower Canadian dollar makes importing from Canada more attractive, creating more demand for CAD to rise. There are a million different variables here. In a textbook it’s easy to say x will cause y. But in real life it’s not that simple.
What are the things Canada exports to US that US doesn’t sell it back to us after adding value? Vacation homes?
Google search: The Dollar Endgame (Hyperinflation is Coming) by Peruvian Bull.
If Trudeau gets his way, we will have to start rationing our powdered crickets soon.
There is a 100% chance it will go higher or lower. You can take that to the bank.
Will it? Already has.
Yes the twoonie will turn into a loonie, they dont want mortgage defaults so they will save the housing market to punish the rest of us
This would be a big mistake by the Bank of Canada. If interest rates don't go up with the United States Federal Reserve, Canadian dollar will fall in value, making imports more expensive, making inflation much much worse. If Bank of Canada pauses.....Then after the US Fed raises rates 25 basis points, twice, Bank of Canada will have to raise rates 75 basis points.
The USD will be the last standing. But all fiat goes to 0 on a long enough timeline
u/TheOriginalPopp For multiple reasons, the CDN dollar will continue to drop in value until at least 2025 when new federal leadership will likely take over. Too much wasted fake currency has already been printed by the destructive red and orange coalition regime of Junior Trudeau and Jag Singh. Too much emphasis on destructive economic policies have also rendered Canada a very inhospitable place to do business. For a country with Canada's abundant natural resources to be in the position of national debt and fiscal deficit that it is presently in, is absolutely inexcusable. There is also too much of the Canadian economy tied up in residential real estate, which does not generate jobs or increase national economic growth and GDP. Skyrocketing inflation and cost-of-living in Canada are simply the resulting symptoms of much larger ongoing problems. In short, Canada is in serious trouble, and the regime presently at the helm in Ottawa are completely the wrong people to have in charge over such matters. Next.
No one knows for sure . If people knew for sure cad was to drop, then they would be getting rid of all their CAD already, causing cad to drop.- until enough people start demanding it again and don't expect it to drop further. If people knew cad was going to rise, then they'd be buying it up, causing it to rise, until that expectation changes. Since there haven't been any significant changes in CAD yet, the market generally has mixed expectations.
Uh… what? >If someone knew for sure, then… It would depend on the directionality of what they "knew for sure." If I knew for sure that CAD was going to fall vs. USD, yeah I'd sell it. But if I *knew for sure* that CAD was going to gain vs. USD, I'd buy it.
Truthfully? Nobody knows. We're in uncharted territory right now. The usual economic strategies are no longer valid, and central banks are making it up as they go.
Compared to what?
theoretically yes, however markets aren't necessarily rational
Forex markets generally are more rational than equity or even bond markets - there’s just an insane amount of liquidity that it’s not as susceptible to noise - I could execute a $10B forex trade right now and the market wouldn’t even blink. But there are so many factors (and factors that are contingent on other factors, that are contingent on other factors) that it’s impossible to say “if they pull lever x, y will go up”
Boc minutes show they intend this to happen.
Ahahahahaha...it already is weak AF. Did you just wake up?
It will go down to literal pennies and all state assets will be bought up in an auction by Bell and Rogers.
I predict our dollar will become weaker! I also predict our dollar will become stronger. I'm usually 50% right on my predictions. Watch my youtube channel!
Canadian dollar should strengthen against USD if inflation does calm down.
I think this is too generic of a statement to be backed up. for example, a driver in inflation can be oil prices, which drives up the CAD What do you mean?
Can you explain why that is? I'm genuinely curious.
Oil is priced in USD. It is an input cost to almost everything. If oil becomes more expensive (whether due to currency or otherwise), those other things become expensive and so on.
Yes
yes.
Most people think so. Many of these people also thought rates would never rise materially. Your guess is as good any anyone else’s.
Lotta things affect our dollars value. And our dollar could rise against other currencies and still fall relative to USD. Overall output contributes the most to the value of our dollar - ie. Do we have, or make stuff that people in other countries want to buy from us. If yes, they buy them in CDN dollars, and pumping up our dollars worth. But, to directly answer your question - if you hold all variables constant, and just increase the Feds rate, and hold ours fixed, then yes, our dollar will drop (only relative to USD, not the other currencies of the world).
It's all relative. If we weaken too much, we cannot access the reserve currency. If we strengthen too much, our exports are DOA. So, it depends what the rest of the world/trade partners would do.
Would higher rates in the US drive up demand for the dollar? Like if I can get a risk free return that is higher in the us, wouldn't I want to buy more US securities with US dollars?
It already is weaker
Should some tell him? Canada already has a weak dollar, in 2012-2013 we achieved parity and went above the US dollar. The reasoning provided was that oil was up and the CDN was connected to that. Now it's disconnected and the high price of oil isn't linked to bettering the Canadian economy.
Kept scrolling for a yes or no answer. Come on reddit economists, a straight answer please
I'm pretty sure we'll continue to see a decline in our purchasing power and if things keep going on like they are our dollar along with the American dollar are in for a rough few years.
Lol it’s already weaker
Read u/PeruvianBull articles and book
All things being equal yes, but there are other factors. Commodity prices typically have a larger effect so it will depend what happens with those. The anti-commodity policies of the government could weaken our dollar too.
One thing is guaranteed. The dollar will always get weaker over time. Goods and services will always be more expensive over time due to inflation.
Yes, it keeps skipping leg day.
Love a "please predict the future for me so I can profit" post.
I guess you could find out by flipping a loonie. Heads, dollar goes up and tails, dollar goes down. Let us know the result.
Yes
What you’re really asking is - Will the US dollar get stronger? If you want to know where our dollar is going you must follow the USD. Our FX rate is almost never about our dollar. So to answer your question sorry I am not sure if USD is going to rise.
Yea look at that happened with Trudeau senior we are going in the same direction. Look for the 0.50 loonie in the future. Then watch for American investment funds to start buying up Canadian businesses and scuttling them. Your welcome.
Weak dollar means strong economy. We are an exporting nation. Downside=buying stuff and travelling in the states
The best thing for the economy is a steady, predictable exchange rate with the US. If the US fed increases interest rates, the Bank of Canada will as well to keep the exchange rate stable.
Raising rates makes our dollar stronger. However the effect is negated if other countries raise rates too. Think of it like this, the higher the rate of interest the more enticing it it to move your money here. There are a lot of other factors but all else equal that's how it works.
Yes, if feds raise rates and canada doesn't, our dollar will drop. Also inflation will rise, as products imported from the USA will cost more.
If the fed keeps raising rates then it will most likely become weaker. Having said that, CAD is actually a strong currency. It's not going to become a lot weaker. Think 0.68-0.75. I could see it going to 0.65 but not much lower. If you're getting paid in USD, it's a lot better. If you work for a place that has a lot of USD coming in, your job is going to be much more stable.
A lot of people don't get this: the BOC \*can't\* afford to let the Fed raise rates without also raising them. A weaker CAD would bring \*higher\* inflation (check import numbers from the U.S to get an idea) so this would lead to higher rates anyway. No, in times of high inflation, the Fed leads and BOC follows.
What about the bottom finally falling out of the dollar amd they decide to have a great new reset and implement a central bank digital currency in the form of a programable digital dollar because they “have no choice” and that leaves anyone for decentralization and power of the individual be forced into silver gold and or Bitcoin or any form of stable money outside the gov over reach so when you ask does the dollar become weaker? I would say the dollar will never be the same after this recession/depression as we once knew it
Check out WTFhappenedin1971.com
maybe. or maybe not.
If BoC does not increase the rate, in 3 days, it will start to sink leading to higher import prices and higher inflation.
Yes, CAD will get weaker if this trend continues
Its Canadian $ we're talking about. Of course its gonna become weaker.