Cane Bay Partners is one of the most prominent consulting firms in the U.S. Virgin Islands. Under leaders like David Johnson Cane Bay has helped many financial services businesses worldwide overcome challenging problems. A report Johnson highlighted on Twitter looked into an interesting recent development relating to two especially important currencies.
A Tale of Two Dollars
The United States dollar is the international reserve currency of choice, with governments worldwide holding large stores of it as part of their foreign exchange portfolios. The U.S. dollar is also the gold standard when it comes to many types of international trade, whether that means barrels of oil from the North Sea or finished goods shipped from Hong Kong.
With a far smaller economy and correspondingly less geopolitical heft, Canada does not attract as much attention with its own currency. At the same time, Canada lags behind far more populous China by only a little bit when it comes to annual trade totals vis-à-vis the United States.
Given that the economies of these two close trading partners are also generally similar in various ways, their currencies tend to share somewhat related fates on foreign exchange markets when nothing unusual is happening. At the same time, a bit of unexpected news can also cause sharp divergences between the American and Canadian dollars, which often makes things exciting for traders.
Economic Uncertainty Pummels the Loonie
After the United States Federal Reserve Bank raised its benchmark interest rate a number of times over the past couple of years, Canada’s corresponding institution made waves with a dissimilar move of its own. Committing to keeping its interest rate steady for some time, the Bank of Canada credited concerns about looming economic sluggishness for its decision.
That announcement sent foreign exchange traders scrambling to divest themselves of the Canadian dollar. Naturally enough, many dissolved their positions by defaulting to American greenbacks, instead.
Coming on top of news about the trade situation with China, this helped to strengthen up the U.S dollar significantly, particularly relative to its Canadian counterpart. As Johnson’s tweet made clear, this somewhat surprising development left the Canadian dollar at a recent low relative to its rival.