Canadian Dollar Struggles

The Canadian dollar has had a rough period of time against the U.S. dollar, declining to a point that it hasn’t been in several years. The USD/CAD is now at 1.3951 compared to the 1.3735 that it stood at just five days ago, meaning that the loonie has lost a lot of spending power against the greenback in a very short period of time. It’s very close to the high point over the last year, less than half a penny off of the worst performance the CAD has seen in the last 52 weeks.

There’s a good chance that this momentum will continue, especially given the U.S. dollar’s renewed strength in the world markets. Economists believe that the problem is deeper than this, though, especially because of the fact that the Canadian stock market is also currently in decline. This, experts believe, points to the fact that there is a large amount of wealth leaving Canada.

Watch the StruggleIt’s very visible in the numbers that are being reported. Retail sales are shrinking in Canada, from 3.8 percent growth last year, to just 0.9 percent through September of this year. That’s a huge slowdown, and it illustrates the fact that there is far less expendable income in the average household right now, a problem that has many solutions; all of them being a long and drawn out process.

The liberal Canadian government may need to take on a conservative approach to correct this problem, though, and that doesn’t seem likely to happen. Businesses need more growth in Canada to help here, and there’s very little incentive for them to do so right now. There are more imports coming into the country as demand for products not mass produced in Canada is increasing. This is especially true of more expensive and higher end household items, further exacerbating the problem. And this makes a lot of sense. If you think about it, Canada doesn’t have the equivalent of an Apple or a Microsoft in their economy. They have tech companies, but not nearly of the same size or power. In other words, import substitution–the act of replacing imported goods with domestic equivalents–is not going to be an easy task for Canada. The infrastructure just isn’t in place, and there’s no sign of efforts to do so. This would be the simplest way to help the average household recover, but not in this case.

The good news for traders is that when a large amount of wealth leaves a nation, like what is currently thought to be happening in Canada, the recovery process is slow. And because it looks like this hasn’t even begun on any sort of widespread basis, the next several days, or even weeks, will more than likely continue to see the CAD have a downward trend against major currencies. This is even more likely against a strong currency like the USD. It sets up a general trading framework for both Forex traders and binary options traders as they are able to see exactly what is happening on a fundamental level, and then craft trades out of their technical information.

Traders focusing on the CAD need to keep fundamental indicators like this in mind, but they should also be watching for signs of Canadian banks and the government itself to start implementing policies that will help correct the struggling CAD. If the CAD drops to a critical weakness level, even an announcement that a policy is going to be implemented could have the potential to drive up the price of the loonie, so watching the news is a must, too.