Canadian dollar shines brighter than you think

The Canadian dollar has been somewhat overlooked this year, and that's just not fair. The Canadian dollar is performing quite well compared to the US dollar, outshining many major currencies. So, the main question is whether the CAD can maintain or even enhance its performance. Let's try to figure it out in this piece.

First, it might seem cringe to talk about the Canadian dollar's strength when it has actually depreciated against the USD. Just take a look at the USD CAD pair chart below.

But let's take the next step and add other major currencies to the same chart. Now you see that only the British pound has outperformed the Canadian dollar since the beginning of 2023. And, of course, you cannot ignore the USD JPY here. Hopefully, you don't have too many yens in your portfolio.

Up until October, the USD and the CAD maintained roughly equal value, with the US dollar only pulling ahead in recent weeks.

The upcoming event that could affect the pair is the Bank of Canada's meeting. Experts anticipate that the central bank will raise the interest rate by 0.25%. Typically, such moves support the currency rate. However, many specialists believe that such a hike might have a negative impact in this case due to potential stress on the local economy and pressure on the housing sector.

Meanwhile, the US dollar remains robust. US government bond yields are on top, the economy stands firm (so far), and the Fed isn't close to lowering the key rate. By and large, it seems unlikely that the CAD will appreciate against the USD in the coming months. Conversely, the US dollar might hike a little by the end of the year.

However, in 2024, the trend is expected to change. The US economy will probably weaken, the Federal Reserve will have to revise its policy, bonds outstanding yield won't last forever, and the term "recession" might not be too far off. These factors are likely to have a negative impact on the USD.

Plus, the oil prices are projected to remain high, and the Canadian dollar still maintains a commodity currency status (however, the direct correlation between the currency rate and the oil price hasn't been very strong in recent years). 

All of this suggests that we can wait for the Canadian dollar to strengthen against the USD in 2024. Experts believe the USD CAD exchange rate could reach around 1.31-1.32 by the end of the following year.

It's important to keep in mind that financial markets are dynamic and change constantly. So, if you plan to buy or sell any currency, stock, or other assets, be sure to conduct your own research and stay updated with the latest developments.