Anyone who has ever exchanged currency is part of the forex market. Whether you’re an occasional traveller getting currency for your vacation, a forex investor or trader, or a business owner paying overseas bills, the forex market influences everyone. Even if you’ve never left Canada or ever traded currency, foreign exchange rates impact the groceries, technology, and everything we import – which YOU then buy.
On October 9th, 2019, Continental Currency Exchange celebrated 30 years of serving customers. In honour of this milestone, we’re taking a deep dive into the trends and factors of the history of currency exchange that have made us Canada’s Foreign Exchange Experts™ for the last three decades.
The foreign exchange market is fast-paced. Rates are constantly fluctuating – changing every day, hour, and minute. There are tons of factors that influence exchange rates. Here are just some of the key market factors to monitor in currency speculation and tracking:
Since currency is issued by a country’s government, the strength of that government influences the strength of the currency. War, revolutions, or political turmoil pose risks for foreign investors who would rather bet on more stable economies. Elections, impeachments, and separation referendums can all impact foreign exchange rates.
Politics and economics go hand-in-hand when it comes to foreign exchange rates. A country with a stable economy usually has a stable currency. Recessions, depressions, and even employment levels impact the rates.
Public or government debt is debt owned by the central government. Government debt can greatly sway interest rates. Large debt leads to inflation which leads to a drop in the value of the currency.
Imports and Exports
Exchange rates are greatly influenced by a country’s balance of trade. This covers how much a country imports vs how much it exports – the value of imports minus the value of exports to be exact. A country has a trade deficit if the value of imports exceeds the value of exports – and a trade deficit often means a lower exchange rate. A trade surplus is just the opposite; when the value of exports exceeds the value of imports – a trade surplus means a stronger exchange rate.
Growth Forecast and Inflation
A little bit of inflation is good – it means a growing and stable economy. But too much inflation or growth pushes down the value of a currency. Most countries aim for about 2-3% annual growth. High inflation means an increase in the supply of currency without equal demand.
Trends in Rates
There are three types of forex trends: uptrends, downtrends, and sideways trends. They can also be evaluated based on duration: long-term, short-term, and intermediate. In the last thirty years, we’ve seen every type of trend influenced by every factor there is. Here are some snapshots of the loonie in the last five years:
CAD – USD
CAD – EUR
CAD – GBP
CAD – JPY
What We’ve Noticed In The Last 30 Years
The G8 countries are huge market forces that factor into everything forex. Any big changes in these countries influence the forex market. War, politics, recession, trade, (and so many other factors) all play a role. Brexit, for example, had a large and lasting impact on exchange rates.
In the last 30 years, we’ve noticed an increase in travel and global citizenship. Currencies that were considered “exotic” a few decades ago have now become commonly available and in demand due to a boom in travel. When a country becomes a popular travel destination, that currency also begins to trend.
With this in mind, it is important to note that currency goes through cyclical patterns – that is to say: what goes up must come down. Spikes in consumer behaviour change and influence the rates for a while – until the popularity dies down again.
No matter what factors have influenced rates or how currency has trended, it has been an honour to serve Ontarians at our 19 branches across the province. We look forward to many more decades of foreign exchange as Canada’s Foreign Exchange Experts™!
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