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Why is the Canadian Dollar Weak?
Friday, 10 October 2008 19:19:52 GMT  |  David Rodriguez, Quantitative Analyst
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The Canadian Dollar plunged to its lowest levels in over three years, as an outright rout in crude oil prices and broader commodity markets led to a similarly dramatic rally in the US Dollar/Canadian dollar exchange rate. The Canadian currency likewise fell victim to broader US dollar strength, as the previously-downtrodden Greenback was the best performer among G10 currencies through the day’s clear financial market duress. Indeed, US Dow Jones Industrials Average tumbles perhaps counter-intuitively further fueled the USD’s ascent, and further dollar gains would bode poorly for the Canadian dollar’s exchange rate against its US namesake.

 

Crude_Oil_2008-10-10

The Canadian dollar has proven especially sensitive to movements in broader commodity markets, and indeed we see that the USDCAD’s correlation with the Reuters/Jefferies CRB Commodity Index is near its strongest levels in at least 10 years.

USDCAD_2008-10-10

Thus whether or not the Canadian dollar may recover from its recent tumbles may largely depend on whether commodities can bounce from recent lows. Even gold—typically seen as a safe-haven store of value—has fallen substantially on a clear de-leveraging across global financial asset classes.

Written by David Rodríguez, Quantitative Analyst for DailyFX.com

To contact the author of this report, e-mail drodriguez@dailyfx.com

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