2012 Forecasts for US Dollar v Canadian Dollar

Written by Caitlin Wood
Last Updated January 17, 2012

As 2012 settles in, Forex investors turn their attention to predictions on the way in which the loonie, i.e. the Canadian dollar, will fare against the greenback, or the American dollar. This currency pairing is one on which many players on the Canadian financial market place their odds. The Forex rate is also indicative of the comparative competitiveness of the two economies. So, what do the forecasts say? What is the current outlook? What can one expect from the loonie-greenback pairing over the upcoming twelve months?

Where Does Loonie Stand at the Moment?

Not a lot of stability, according to most experts and current trends. According to the online currency converter, the Canadian dollar was quoted on Monday, January 9, at 1.0271 against the US dollar, 74.86 against the Japanese Yen and 1.3095 against the Euro. The slights budges and slides recorded by the currency over the past few days were an expected effect of the 3.6% decline of the value of Canadian building permits, down an approximate $6.1 billion in November alone. The evolution of Canadian building permits was actually expected to take much heavier a toll on the currency’s Forex evolution, and while the situation appears to be under control at the moment, predictability is not a defining aspect of the financial trade.

US Dollar to Swing Upward, then Down Again

Meanwhile, the US dollar continues to slide against its Canadian counterpart, in spite of mostly positive forecasts for the evolution of the American currency during the first part of 2012. Experts rushed to estimate that the greenback would experience a boost via current troubles in the Eurozone, under the threat of dissolution since the outset of a new installment in the Greek crisis in late 2011. Since the World Bank continues to swap liquidity in the form of US dollars, it is expected that the US dollar will fare appreciably well, during the first part of the year. It’s not entirely clear how long this ‘first part’ of 2012 will last. Some estimate it won’t go further than March or April. Once that smoke screen clears, however, the US dollar is bound to fall prey to the US Government’s loose policies on the monetary policies of the Federal Reserve and national debt, according to most experts.

How to Invest in 2012

Those same experts actually advise in favor of trading in the US dollar against other major currencies and, of course, the Canadian dollar is no exception. Don’t try a ‘buy-and-hold’ strategy, though. Be quick on your feet, always watch the news and bear in mind that the smallest event and the most seemingly insignificant statement might drive the greenback’s value back up, at unprecedented odds. A bearish outlook for the long-term will probably work best here, since the American dollar is set for a long-term slide, experts say.

As 2011 drew to a close, several financial greats hailed the Canadian dollar as one of the must-have foreign currencies, ideal for Forex trade in 2012. They praised the country’s sound economy and banking system (at least in comparison to that of the United States), its comparatively low budget deficit and sizeable energy and mineral resources. Not only are Canadian traders advised to deal in the currency-the strategy is likely to work as a hedge for the major issues that the US economy is expected to face in 2012.

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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