The rumour mill was in full swing yesterday, as Bloomberg printed an article quoting an ‘un-named French official’ following his meeting with US President Barack Obama. He revealed Obama’s concern that the Strong US-Dollar would prove to be ‘a problem’ for the US economy.
The US timeline for raising interest rates is so firmly at the front of investors minds, that even though the quote could not be confirmed, the fear alone moved the markets significantly. What does this have to do with the CAD? The US is Canada’s largest trading partner. A strong US dollar has fuelled the recent manufacturing boom in Canada as a cheap source for US domestic goods. As such, the fate of the CAD is inextricably tied to its Dollar cousin over the border.
An indication that the President would like the Dollar to be weakened would spell bad news for a Canadian economy that is trying to build its manufacturing sector to compensate for the abysmal performance by oil in recent months. This is why rates are now above 1.90 again and presenting excellent opportunities for CAD buyers this week. Those looking to make a CAD purchase over the next few months should take advantage of these 6 year highs. Due to the CAD’s ties to the USD, you are not only depending on the Canadian economy to improve, but also the US economy at the same time. It is a gamble I would not be inclined to commit to. Rates can be pegged for up to 12 months if you so wish.
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