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Tuesday, September 26, 2023

Canadian dollar: on the drip of oil

In April, consumer prices in Canada rose 3.4 percent, the fastest they have been in almost a decade. The central bankers in Canada are nonetheless calm and refer, as they are currently in many places, to the temporary nature of the higher inflation rates.

The Bank of Canada does not want to shake the current key interest rate of 0.25 percent before 2022. However, it began to curb its weekly bond purchases at the end of April as the first leading central bank in the world. As a justification, the monetary authorities pointed out that the country’s economy was recovering from the corona crisis faster than expected.
In 2020 as a whole, gross domestic product (GDP) shrank by 5.4 percent. For 2021, the central bank expects strong economic growth of 6.5 percent. According to the forecast, GDP is set to grow by 3.7 percent in 2022, and by 3.2 percent in 2023.

Important raw material prices

The Canadian dollar, also known as the loonie, could benefit from the interest rate hike fantasy. However, because of Canada’s large crude oil reserves, the currency is primarily counted among the oil currencies. And these often move in step with the price of the raw material. When the oil price plummeted in the wake of the Corona crisis , the Canadian dollar came under considerable pressure. With the oil price rising again, the loonie then recovered significantly. This was supported by rising prices for other raw materials that are important for Canada.

In their assessments of future exchange rate developments, currency analysts always refer to the forecasts of the oil price. The higher demand for the raw material associated with a return to normal is countered by a greater supply if the producing countries withdraw their production cuts. A number of experts expect a lower oil price at the end of the year than it is now.

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Skeptical analysts

Most foreign exchange strategists are correspondingly skeptical about the Canadian currency . For example, the analysts at DZ Bank expect that 1.54 Canadian dollars will have to be paid for one euro in six months. Currently, one euro costs just 1.48 Canada dollars.

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