Looking at the last year (November 2017 to November 2018), the Canadian dollar has ranged between 75 cents and 80 cents U.S. for 1 Canadian dollar. Over the last 2 years, the Canadian dollar has ranged between 72 cents and 82 cents U.S. for 1 Canadian dollar. Going further back over the last 10 years, the Canadian dollar traded over par – 1 U.S. dollar for 95 cents Canadian and a low of close to 67 cents U.S. for 1 Canadian dollar.(4) What are the drivers of the Canadian dollar exchange rate? Historically, the Canadian dollar would buy more American dollars with a rising crude oil price, rising commodity prices, positive debt developments (lower debt) and positive trade arrangements with the US since the US has historically been Canada’s most important trading partner. Looking at crude oil prices, they have trended over $60 a barrel for West Texas Intermediate (WTI) crude for all of 2018 so far and the Canadian dollar has been in its current range of 75 cents to 80 cents over this time. In 2017, crude oil prices traded between $45 and $60 per barrel, but the Canadian dollar has been in a similar range. Going back from 2014 to 2017, crude oil prices ranged from $95 per barrel in 2014 to a low of $27 per barrel in 2016 and then recovered slightly to around $45 per barrel. The Canadian dollar started 2014 at 95 cents U.S. for 1 Canadian dollar. With the decline in oil prices, the Canadian dollar fell to 68 cents U.S. to 1 Canadian dollar and then rebounded to its current range. Crude oil however, tripled from its low, and the Canadian dollar rose only about 15% over the same time frame. I would expect the Canadian dollar to be trading over 80 cents with today’s crude oil prices. (5) For other commodities like precious metals, base metals and soft commodities, these prices have not recovered in the same way as oil. These prices have gone down since 2015 and have not recovered. (7) An interesting twist to the oil story is the Canadian oil discount. (4) World oil prices have risen over the last 2 years, but the price of Canadian oil on the world market has not gone up in price by the same amount. The world oil price has appreciated about 80% over the last 2 years, but the Canadian oil price has barely moved up at all. The explanation for this is that Canadian oil can be pumped out of the ground but cannot get to market due to lack of capacity in the pipeline system. The Canadian rail system is an alternative to pipelines, but so far has not been delivering the oil due to capacity adjustments being made with the rail companies. In terms of the Canadian debt situation, it has been rising steadily over 2017 and 2018 and has been flat from 2012 to 2016. (1)(2) The U.S. debt has been rising steadily over the past 6 years. (2) For interest rates, both countries have maintained record low rates since 2008. Even though Canadian debt is at record levels, debt in the U.S. is also at record levels and this is not affecting the exchange rate between the 2 countries. This is in stark contrast to the 1990’s when the Canadian debt was high and there was talk of lowering Canada’s credit rating due to excessive debt. This was remedied through spending cuts and higher tax revenues. (6) The last factor has been the NAFTA renegotiation into the new USMCA. The uncertainty surrounding the lack of a deal for most of 2018 would likely have meant a weaker Canadian dollar. Investors and markets generally do not like uncertainty and tend to flee towards more certain returns if given an option. The US dollar was strong versus many currencies (8), but the Canadian dollar has been relatively flat versus that U.S. dollar. When the NAFTA deal was successfully renegotiated, the Canadian dollar exchange rate barely responded to the news on October 2, 2018. (9) What to take from all of this? While most of the events seem to correlate with the movement in the Canadian dollar versus the U.S. dollar, there is something that is not adding up with respect to the reaction to the NAFTA deal and the oil price movement. I would expect the Canadian dollar to be more volatile due to these 2 market events. Source Links: https://tradingeconomics.com/canada/government-debt https://tradingeconomics.com/united-states/government-debt https://www.bnnbloomberg.ca/canadian-crude-s-discount-to-wti-hits-40-1.1146741 https://www.xe.com/currencycharts/?from=CAD&to=USD&view=1Y http://www.infomine.com/investment/metal-prices/crude-oil/5-year/ http://www.pressreader.com/canada/montreal-gazette/20110721/282102043331214 https://tradingeconomics.com/commodity/gsci https://www.macrotrends.net/1329/us-dollar-index-historical-chart https://www.vox.com/2018/10/2/17923638/usmca-trump-nafta-trade-agreement