The Canadian dollar enjoyed a surge in 2020.
For the average Burnaby resident, the country's currency value may not seem like a pressing concern.
However, it does matter.
The Canadian dollar's recent boost is linked to increased consumer spending and an increase in commodity prices. As a significant oil producer, Canada has benefitted from the value of US crude futures going up in the second half of 2020.
When you learn how to trade forex, you begin to see how commodities link to currencies and, in turn, a nation's economic state.
In simple terms, forex trading is the process of speculating on the value of currencies. Like any tradable asset, there are multiple variables to consider.
A platform such as IG, one of the world's top CFD Forex providers, aims to distill data such as daily closing prices, historical trends and, more broadly, external factors such as commodities.
Oil Boosts Dollar and the Canadian Economy
In the case of CAD, the rise in oil prices has improved Canada's position as an exporter of the commodity. When people are paying more for something, it benefits the people selling. In this case, Canada's commodities sector is profiting from changes in the oil market. This, in turn, has strengthened the dollar because oil exports have had a positive impact on the economy.
The upswing is coupled with an increase in consumer activity, too. With COVID-19 restrictions lifting and people getting back to normality, shops are witnessing an increase in footfall. An RBC consumer spend tracking report from July 2020 shows that overall monthly spending was up 3.1% year-on-year.
When pieced together, these economic trends result in positive news for the average person on the street.
Even though the world of forex charts, oil futures and consumer spending reports may seem like a million miles away, they're relevant to the daily lives of Canadians. When the dollar is strong, for example, imports become less expensive. When it's cheaper to import products from overseas, retailers can lower their prices, which means consumers pay less.
Market Movements Matter to Everyone
In turn, this has a positive impact on the cost of living, and for residents with low incomes—this is particularly important.
When goods are cheaper, and income levels remain the same, you can get much more for your money, making life a little bit easier.
What's more, it encourages people to spend more readily, and that benefits businesses. You get a cycle of mutually beneficial spending that boosts both the economy and those living within it in no time.
A strong Canadian dollar also means foreign visitors get a better exchange rate which often encourages more people to visit a country. Once again, this boosts income levels for the economy.
While it may seem like the strength of the Canadian dollar is irrelevant to anyone that doesn't invest in forex, the reality is that it does matter—a lot.
When a country's currency is strong, it's not only a reflection of a robust economy; it's a contributor to a robust economy. When an economy is strong, everyone, regardless of his or her standing in society, benefits.
For more information, please visit www.ig.com.
