subject: The Various Factors That Play A Role About Canadian Dollar Parity [print this page] When we talk about parity, we refer to something that is on par, or equal to something else. When we talk about a Canadian dollar parity forecast in this article, we are referring to parity between the Canadian currency and the US dollar. Let us briefly analyze the factors playing a role in such a forecast.
The US dollar has been weakening against other major currencies for quite some time now. This can be attributed to various factors. One of them is lack of trust in the faltering US economy. As the US dollar declines, more and more people (and countries) lose faith in the dollar, switching to another currency with a better long term outlook. This becomes a self-fulfilling prophecy: as more people expect the USD to drop, the more it will decline in value. When investors switch to the Canadian dollar, it further bolsters the value of this currency.
The Canadian dollar has been worth less than a US dollar for many years. As the US dollar went into long term decline, its Canadian counterpart began to appreciate against it in a remarkable way. The stable economy and good long term prospects in Canada of course helped a lot in this regard.
There are therefore more and more economists that nowadays predict that the Canadian and US currencies will soon reach parity. There are some optimistic experts predicting this will occur within the next few months. Others are a little more cautious in their approach and they predict it to happen in less than a year from now.
When economists try to do a Canadian dollar parity forecast, they use mainly two approaches. They are the fundamental approach and the technical approach. We will briefly examine the difference between them.
The fundamental approach concentrates on so-called fundamental factors to determine the future exchange rate between two currencies. In other words, they take into account things such as GDP, inflation and unemployment when doing their calculations. This approach is widely used when trying to predict long term exchange rate fluctuations.
The fundamental approach encompasses the use of what is referred to as fundamental indicators in the industry. Economists following this approach will therefore use factors such as inflation, GDP and unemployment when drawing up their predictions. This approach is generally more useful when one tries to make long term predictions of a currency's value.
How long it will in fact take for the Canadian currency to catch up with its US counterpart is a matter of debate. Few economists, however, disagree that it will in fact happen. A Canadian dollar parity forecast is no longer a remote possibility - it has become a very real probability.
