The Exchange Rate: US and the Canadian Dollars Analytical Essay by Nicky

The Exchange Rate: US and the Canadian Dollars
Looks at the drivers of the exchange rate of the US (USD) and the Canadian (CAD) dollars (USD/CAD) over the past several years.
# 149136 | 2,135 words | 9 sources | APA | 2011 | US


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Description:

This paper explains the exchange rate of the US (USD) and the Canadian (CAD) dollars (USD/CAD) reveals some of the differences in their economies that help to make clearer why Canada has outperformed the US during this economic crisis. Next, the author investigates the short run drivers, which are the interest rate differential between the two countries and the market's view of commodity prices particular oil, and the long run drives, which are the state of the US economy and the trade relationship between the US and Canada. The paper concludes that a political problem in Canada is caused when, despite the increase in value of oil exports, Canadian exports to the US decline significantly as the Canadian dollar increases in value.

Table of Contents:
Introduction
The Rates
Drivers
Strong Currency Affects the Balance of Payments Account
Conclusion

From the Paper:

"These developments have turned the Canadian dollar into a petrocurrency. As such, short run price movements in the Canadian dollar have reflected short run price movements in crude prices. The impact of these moves with respect to the US dollar is amplified by the fact that not only is the US a net importer of oil, but Canada is the largest source of imported oil in the US. Moreover, almost all of Canada's oil imports go to the US. Thus, an increase in the price of oil not only increases the value of the Canadian dollar but weakens the US dollar simultaneously. Much of the volatility in the exchange rate in this pairing since October 2007 is tied to volatility in the price of crude oil. In the second half of 2008 the price of oil collapsed, and the Canadian dollar lost value quickly as a result. A slight recovery in oil prices in early 2009 has likewise seen an increase in value of the CAD.
"The single greatest long term driver of the USD-CAD exchange rate is the US economy. Relative strength and weakness in the US economy impacts the US dollar. This typically impacts not just the exchange rate with the Canadian dollar, but with other major currencies as well."

Sample of Sources Used:

  • Currency chart adapted from www.dailyfx.com
  • Fed Funds rate from US Federal Reserve. Retrieved June 28, 2009 from http://www.federalreserve.gov/fomc/fundsrate.htm
  • Canadian bank rate from Bank of Canada. Retrieved June 28, 2009 from http://www.bankofcanada.ca/cgi-bin/famecgi_fdps
  • Canadian oil production statistics from the National Energy Board. Retrieved June 28, 2009 from http://www.neb.gc.ca/clf-nsi/rnrgynfmtn/sttstc/crdlndptrlmprdct/stmtdprdctn-eng.html
  • Coulling, Anna. (2009). USD to CAD - Daily Chart. FX Street. Retrieved June 28, 2009 from http://www.fxstreet.com/technical/forex-strategy/currency-trading-majors-pairs/2009-06-22.v04.html

Cite this Analytical Essay:

APA Format

The Exchange Rate: US and the Canadian Dollars (2011, November 25) Retrieved March 28, 2020, from https://www.academon.com/analytical-essay/the-exchange-rate-us-and-the-canadian-dollars-149136/

MLA Format

"The Exchange Rate: US and the Canadian Dollars" 25 November 2011. Web. 28 March. 2020. <https://www.academon.com/analytical-essay/the-exchange-rate-us-and-the-canadian-dollars-149136/>

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