Why is the Canadian Dollar Weak?

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.

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.

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.

DailyFX

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