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How did the Canadian dollar perform in November in comparison to December?


Dec 16, 2021

The foreign exchange (forex) market is one of the most actively traded markets in the world, but has not been exempt from the effects of the recent pandemic. As various countries faced lockdowns and travel restrictions, the global economy has suffered, including the Canadian dollar (CAD).

Although there has been some recovery for the currency, the discovery of a new COVID variant has caused ripples across Central Banks and the forex market, as well as devastating floods in British Columbia.

Read on to find out more about the CAD, as we explore its value month on month.

The Bank of Canada (BoC) and interest rates

According to Plus500 forex trading, when it comes to the events that can have an impact:

“Macroeconomic data is the most important and heavily relied upon information… because it is the data which is most pertinent when it comes to the strength of an economy.”

Popular macroeconomic factors include interest rates, inflation rates, and employment rates.

At the time of writing, it is the interest rates decided by the Bank of Canada (BoC) which have impacted the Canadian dollar, and the sentiment of the forex market. In October, the Central Bank announced it was ending quantitative easing (QE) — a monetary policy which involves the purchase of a set amount of financial assets in order to boost economic activity.

The announcement at this time revealed that the BoC would move into the reinvestment phase, where it would purchase government bonds to solely replace maturing bonds.

The forex market then experienced high volatility during November, seemingly as a result of the BoC’s decisions. It fell sharply against the US dollar (USD), and even for a period of time the euro (EUR).

In terms of December, investors were expecting Canada’s monetary policymakers to be hawkish — a term that refers to a time when higher interest rates are needed, to combat inflation. It was believed the BoC would act in this way, after data implied a rise in inflation, employment and gross domestic product (GDP) growth.

On the other hand, the emergence of the new Omicron variant was a cause for concern, which could result in consumer caution and less spending, depending on how contagious it is and how significant the symptoms are.

The BoC in fact decided to maintain its benchmark interest rate of 0.25%, seemingly trending carefully by leaving the policy unchanged. It was also decided that interest rates would not increase until April 2022, maintaining its previous guidance.

Canadian dollar vs US dollar

After the BoC released its decisions on interest rates, the CAD dropped lower against the USD — even lower compared to the strong levels seen in the previous three weeks. At the time of writing, the Canadian dollar was trading at 1.2641 to the US dollar (or 79.11 US cents).

However, the thought amongst investors is that this is a temporary fall. Canada is experiencing a rise in employment and growth in wages, presently, recovering to near pre-pandemic levels. This bodes well for the overall health of the nation’s economy and so may increase the value of CAD in the not-so-distant future.

Impact of British Colombia floods

Unfortunately, Canada hasn’t just been dealing with the coronavirus pandemic and the Omicron variant. The nation has suffered from tremendous natural disasters in November, as floods wreaked havoc on British Colombia, cutting off access to one the country’s major ports. This has had a detrimental effect on the economy, the effects of which are still being felt in December.

When comparing November to December, the Canadian dollar has experienced much volatility, as both technical and fundamental factors have had an impact. Looking to the future, the Canadian central bank is set to meet again January 2022, where it will revaluate the effects of the Omicron variant and flooding disasters on the economy, and in turn the value of the Canadian dollar.

By admin