One of the most traded currencies on the Forex market is the US dollar versus the Canadian dollar (USD/CAD). The USD/CAD pair is one of the “majors” group and is popular with traders and investors worldwide.
The US dollar has historically weakened against the Canadian dollar. It is noteworthy, nonetheless, that on September 20, 2007, the Canadian dollar and the US dollar achieved parity for the first time in thirty-one years. Since then, the value of each currency has fluctuated.
Given that the US is the largest buyer of oil and Canada is one of the main suppliers, the USD/CAD pair is frequently referred to as a commodities pair. The value of the Canadian dollar can fluctuate dramatically based on changes in oil prices. Nonetheless, the currency markets are influenced by a wide range of other factors.
Predicting currency prices involves careful assessment based on available data, much like assembling a complex jigsaw with millions of pieces. Even though these forecasts can’t be guaranteed to be 100% accurate, it’s still critical to thoroughly research market information in order to make wise selections. This article is intended for anyone who routinely uses the Canadian dollar in day-to-day transactions or is an active trader and wants to know how much it will be worth in 2024 when compared to the US dollar. Come along as we dissect the intricacies of currency prediction and investigate tactics for navigating the ever-changing financial markets.
Factors affecting the value of the USD
There are several variables that affect the value of the US dollar, which is a universal currency. Because investors consider the USD to be a stable currency, it is widely accepted. Nonetheless, a lot of nations work to undermine the dollar’s hegemony as the world’s reserve currency. China and the BRICS countries—Brazil, Russia, India, China, and South Africa—in particular—are attempting to issue and utilize their own currencies in international trade. It is important to note that their attempts to compete with the USD have not succeeded in the past and are probably not going to succeed in the future. Technical and fundamental aspects have a greater influence on the US dollar than do rival currencies. Let’s go over these elements in greater depth.
Rates of Interest
For several currencies, interest rates are a significant factor in value creation. The central banks’ best tool for controlling inflation is to raise or lower the rates. The Federal Reserve, the US central bank, was established primarily to shield citizens from excessive inflation and to maintain stable interest rates in order to support economic expansion. Since they restrict people’s and enterprises’ access to credit, high interest rates pose a threat to the health of the economy. The reason behind central banks raising rates only when necessary is precisely this.
The Federal Reserve has raised interest rates during the last few years in an effort to combat inflation, going from 0.25% at the end of 2021 to 5.5% at the end of 2023. Simply said, higher interest rates make bank loans more costly for average Americans, which discourages them from taking out loans. Stronger currency means less money in circulation across the economy. The laws of supply and demand that govern how prices are set also apply to interest rates and their effects. In order to combat inflation, the central bank will probably maintain strict monetary policy through 2024.
Financial Metrics
We must take into account a number of economic indicators while assessing the US dollar’s strength in 2024. First and foremost, the GDP (Gross Domestic Product) should be examined. The US Dollar can appreciate in value as the US economy grows. It should be noted that, with a GDP of over 25 trillion US dollars, the United States continues to have the most successful economy in the world. The US monthly GDP fluctuated between 2.2% and 3.2% in 2023. But the GDP was 5.2% by the end of the year, especially in November. This trend is probably going to continue, and in 2024 the US economy is expected to rise by 2-4%.
The US economy is robust and has a low unemployment rate. In November 2023, 3.7% of the country’s workforce was unemployed.
Rates of Inflation
Elevated inflation is detrimental to the economy and may influence the value of USD/CAD. Excessive inflation reduces the purchase power of the currency, which deters investment. Furthermore, the central bank must step in and raise interest rates when the US dollar faces severe inflation, which eventually hinders economic growth. The US economy saw significant inflation in 2022, but it is now steadily declining and is expected to reach stability in 2024. Let’s examine the US inflation rate during the previous 24 months.
Year: Jan, Feb, Mar, Apr, May, Jun, Jul, Aug, Sep, Oct, Nov, Dec
2023 6.4, 6.0, 5.0, 4.9, 4.0, 3.0, 3.2, 3.7, 3.7, 3.1, N/A
2022 7.9, 8.5, 8.3, 8.6, 9.1, 8.5, 8.3, 8.2, 7.7, 7.1, 6.5
Balances of Trade
One key factor in determining a local currency’s strength is its trade balance. Put simply, a positive trade balance indicates that more money is being poured into the local economy and that the country’s products are in demand throughout the world if more things are sold than are purchased there. Additionally, a negative balance indicates that more money is leaving the nation, which could be problematic. But remember that the US dollar is a global currency, and the government can just print more of them if it starts to run out of money to spend. which is true—the US debt is getting more every year.
Over the past few years, the US trade imbalance has been gradually growing, and in 2022, it hit a record high of 945.32 billion dollars. Although statistics for 2023 is not yet available, it is anticipated that there will be a large trade deficit. By comparison, in 2009 the deficit was 393.77 billion USD, and in 2013 it was 446.86 billion USD. The US economy suffers from the growing trade deficit, which could devalue the US dollar.
Public Debt
As was already said, the US government is taking on more debt and printing more money in order to pay its lenders, which is detrimental to the US dollar’s strength. A higher money supply will result in a declining worth of individual dollars. At now, the gross national debt of the United States stands at over 33 trillion US dollars, surpassing the GDP of the nation by a significant margin (25 trillion USD). Debt held by the general public plus debt held by federal trust funds and other government accounts totals $33 trillion in gross federal debt.
Economic Performance and Political Stability
The US dollar’s value may be significantly impacted by the election campaigns in 2024, which is an election year in the US. Global investors are keeping a close eye on US domestic politics when deciding whether or not to make an investment in the US dollar. Historically, Democrats have supported policies that put an emphasis on equality and employment while raising social spending to devalue the currency of the country. Spending more by the government doesn’t produce many actual employment. Furthermore, phony jobs don’t produce goods. Republicans, on the other hand, place a higher priority on measures that reduce inflation and constrain spending. But the positions of the presidential contenders also have a significant impact on the policies. As of this now, at the beginning of 2024, it is unclear how the election will affect the US dollar.
International Economic Situation
It’s important to remember that the US government actively participates in military battles with both Israel and Ukraine, and that billions of US taxpayer dollars are used to support these friends. Nonetheless, the dollar depreciates as a result of the higher expenditure. Furthermore, it’s conceivable that in 2024 there will still be military confrontations.
Factors affecting the value of the Canadian dollar
The price of oil globally affects the value of the Canadian dollar, as was previously established, but there are a lot of other considerations as well. Let’s explore this in greater detail.
Rates of Interest
Like the Federal Reserve, the Central Bank of Canada raised interest rates gradually to combat inflation. Beginning in 2022, rates increased to 0.25%; by 2023, they had risen to 5%. The high rates are probably going to stay that way until 2024. Although high interest rates boost the value of currencies in the short run, they are bad for the economy in the long run. It becomes harder for regular people to get loans, which reduces spending, hurts businesses, and causes the economy to contract.
Financial Metrics
With a GDP of more than two trillion dollars, Canada has one of the strongest economies in the world. Canada’s GDP was 2,139,840 in 2022. Nonetheless, the growth rate varies greatly; for example, in 2019 it was 1.9%, in 2020 it was -5.1%, and in 2021 it was 5%. Canada’s economy expanded by 3.4% in 2022.
Rates of Inflation
Canada likewise has a very erratic inflation rate. There are years when inflation is extremely low and years when it is extremely high. Let’s examine the inflation graph over the previous several years.
Assumed values: 1.6%, 2.27%, 1.95%, 0.72%, 3.4%, 6.8%, 3.62%
2017–2018, 2019–2020, 2021–2022, and 2023
Balances of Trade
In general, Canada has enjoyed a trading surplus in commodities and natural resources, primarily oil and natural gas, but a trade deficit in manufactured goods. Significant swings have been observed in the Canadian trade balance in recent years. Canada’s trade surplus in 2022 was $3.73 billion, a considerable improvement above the $0.83 billion deficit in 2021. The trade balance was in the negative by $25.56 billion in 2019 compared to a $36.91 billion deficit in 2020. The price of energy, particularly oil, has a significant impact on trade balance swings.
The Debt of Canada
Over the past few years, Canada’s national government debt has grown dramatically. Having more debt can be detrimental to the economy and the value of the Canadian dollar because it may force the government to issue more money, which devalues the currency. Let’s examine the debt graph over the previous several years.
1.314 trillion, 1.473 trillion, 0.887 trillion, and 0.884 trillion
2019; 2020; 2021; 2022
2024 oil price forecast
Since the nation’s budget is mostly dependent on oil earnings, the price of oil has a significant impact on the Canadian dollar. Among the biggest employers in the nation is the oil and gas sector. Additionally, the GDP and trade balance figures gain from oil exports. With the third-largest confirmed oil reserves in the world, Canada is unlikely to run out of oil very soon. Additionally, among the biggest producers of natural gas are Canadian businesses.
Being a worldwide commodity, the price of oil is mostly influenced by supply and demand on a global scale. The Organization of the Petroleum Exporting Countries (OPEC) and its affiliates, together with other major oil producing nations, manage the supply of oil.
The amount of oil consumed increases with population and economy size. Even though efforts are being made to switch from oil to renewable energy and Electric Vehicles (EVs), the electrical system and battery technology are still not ready for a widespread adoption of EVs. Every year, more and more electric vehicles are sold, but oil is still the primary energy source for automobiles.
Leading oil-producing nations include the following:
The United States of America is a major global producer and user of oil. Technology for extracting shale oil has advanced to the point that its oil production has increased dramatically.
Saudi Arabia is the head of OPEC and one of the biggest oil exporters in the world.
Russia: Among the major producers of energy, including oil and natural gas, is Russia. However, Russian energy sales to Europe have decreased as a result of its current conflict in Ukraine.
Canada: as was already said, this country is a significant exporter and has enormous oil reserves.
China: Known as the world’s factory of products, China has the second largest population in the world. Although the nation is well-known for consuming a lot of petroleum, China also produces a lot of oil.
Iraq is one of the major oil-producing nations in the Middle East.
A large portion of the pricing is set by the producers. By limiting the amount of the item produced, both OPEC and non-OPEC nations may control pricing. While some oil producers have distinct objectives, others are interested in high oil prices. For example, in an effort to restrict Russia’s capacity to conduct war in Ukraine, western nations are working to maintain low oil prices. The military confrontations in Israel have put Saudi Arabia and other Middle Eastern nations on high alert. Furthermore, oil producers know that excessively high oil prices could encourage an even faster global switch to electric vehicles, which would have a negative long-term effect on them.
The WTI Crude oil price chart and technical analysis show that, since 2021, the price of oil has primarily fluctuated between 60 and 100 US dollars. Furthermore, the price is currently trending lower. We may see low oil prices in 2024 if the downturn persists and the price breaks the support level. In that case, the support might turn into resistance. It is more likely, nevertheless, that the price of oil will continue to fluctuate greatly, ranging from 60 to 100 USD.
oil diagram
Examining charts
The use of technical analysis in predicting future prices is significant. Though it’s true that markets fluctuate and that analyzing historical data doesn’t ensure that prices will remain the same going forward. It should be highlighted, nonetheless, that using fundamental analysis in conjunction with historical research can assist us in estimating.
index of US dollars (DXY)
We can learn more about how strong or weak the USD may be in 2024 by examining the US Dollar index. The US Federal Reserve first launched the dollar index in 1973. Using a geometrically weighted methodology, each foreign currency in the index has the following weight to track the performance of the US Dollar against a basket of six currencies:
Euro (EUR): 57.6%
13.6% for the Japanese currency (JPY)
GBP (pound sterling) – 11.9%
9.1% for the Canadian dollar (CAD)
SEK (Swedish krona): 4.2%
Franc de Suisse (CHF): 3.6%
According to the indicator, DXY has been rising since 2021. The index finds support at Level 100, and it is probable that this level of support will hold the price steady into 2024. The trend indicates that the DXY price for 2024 will probably be in the vicinity of levels 100 and 114.
dxy
Index of Canadian Dollars (CXY)
The Canadian Dollar Index is the weighted average price of a basket of currencies traded against the Canadian dollar, just like the US Dollar Index does. The CXY index fluctuated in value between levels 71 and 76 during the course of 2023. Given the correlation between the index price and the price of oil, it is anticipated that trading in this range will continue throughout 2024.
USDCAD
USD/CAD compares the US dollar to the Canadian dollar.
For the majority of 2023, the USD/CAD currency pair has fluctuated between levels of 1.309 and 1.4. Looking at the price chart that begins in 2022, we can see that the price began and continues to make a slight upward trend. After the price broke through the resistance, the 1.309 level—which had previously served as a barrier—became a support. In the middle of 2023, this support was put to the test and held the price. Technical analysis defines a strong level as the point at which a resistance turns into a support and vice versa. As a result, it is likely that the USD/CAD pair will trade above the 1.309 mark. It is challenging to forecast the resistance level for 2024, though, based only on chart analysis, as the uptrend dynamic is clear and the 1.4 level appears to offer a solid resistance level. This pattern suggests that the price of USD/CAD might either stay in the range or break through the 1.4 mark.
Concluding remarks
In conclusion, a number of variables may affect the USD/CAD exchange rate. Following the COVID-19 epidemic, both countries experienced a sharp growth in their debt due to interest rate and inflationary pressures. Since the Canadian dollar (CAD) is a commodity currency pair, the price of oil will have a significant influence on the CAD. A few other variables that may contribute to erratic price changes in the market include the US’s foreign policy and impending elections. In general, it is challenging to project the USD/CAD exchange rate for 2024, but we can reasonably predict that it will be in the 1.30–1.50 range.
