The Canadian Dollar, Swissy of the Americas!

The Canadian Dollar is emerging as the Swiss Franc of the Americas! Recently, the CAD has ascended to levels against the USD that has not been seen since the 1970s!

Let’s take a look at some of the events which would make it the CAD the nouveau safe haven currency of the Western Hemisphere.

1. Euro as Reserve Currency

Central Banks have been on a recent run of reorganizing their foreign reserves. Most Central Banks are diversifying into more euro holdings and less USD. This has solidifying the Euro as a strong alternative in foreign reserve currency holdings.

A declining dollar benefits the CAD greatly!

2. Geo-Political Factors in the Americas

Cuba has long challenged the United States’ influence throughout the Americas. Recently, Venezuela has joined in the left-wing struggle and has been slowly renegotiated energy contract with the big multi-nationals.

With oil prices rising, Hugo Chavez has been exporting Venezuela’s new found oil influence throughout Latin America.

Recently, Venezuela was joined by Bolivia when, in a surprising move, nationalized their gas fields. This has many traders nervous since it is in the United States backyard.

3. CAD is the new Petro-Currency

In the time when the UK began pumping oil from the North Sea, GBP was the petro-currency of the time. Now a good oil play is to buy CAD and sell JPY. The CAD has shown strong correlation with the price of oil. CAD/JPY has shown an over 85% correlation to the price of oil since 2004.

Why the CAD/JPY? Simple! Canada is a net export of oil and Japan is a net importer of oil.

4. Net Exporter

Canada currently runs a trade surplus with its largest trade partner, the United States. This will give it more backing than any currency in the Americas as an alternate to the USD. Canada is rich in the commodities most in demand, oil, natural gas, diamonds and gold.

China and India are emerging economies with size. As their economy grows their demand for oil will grow also. So far OPEC has not demonstrated the capability to expand capacity in line with the increase in demand.

This should keep the CAD in demand as pressure for these resources are predicted to increase into the future.

The fact that the CAD has strengthened so much so fast should not be a surprise to anyone. This country has the resources and government control to play to its strengths, much like Switzerland.

Caution should be exercised. As with Britain when North Sea oil was plentiful, the CAD could strengthened to a degree that could trigger an economic downturn. North Sea oil peaked in 1999 and Britain is now a net importer of oil.

Conclusion, if you are looking for an oil play in the currency market or a safe haven to the USD in challenging geo-political times, let me introduce you to the Canadian Dollar.

For more currency education visit FX Trade Central!

Happy Trading!