CAD Establishing itself as Benchmark Currency?

By Dan Eduard – Over the last year, while the global economic crisis has weighed down on the U.S. dollar and deficit concerns have caused the euro to freefall, the Canadian dollar, also known as the loonie, has emerged as one of the strongest performers in the currency marketplace.

A number of factors have caused the CAD to become one of the benchmark global currencies, preferred by investors and national banks alike. It is for these reasons that now may be a good time to take a look back on the assent of the loonie in the forex market.

This week, Russia announced that the CAD will become the country’s newest reserve currency. In addition, it has been widely reported that China has been buying up an unknown amount of loonies. This is largely due to the perceived notion of Canada as a stable country politically, with a highly secure economy.

While the CAD was for a long time tied to the price of oil, the Bank of Canada (BOC) has done an excellent job of diversifying its economy.

Furthermore, Canada recently became the first Group of Seven (G7) country to raise interest rates since the beginning of the financial crisis. As the pace of the global economic recovery intensifies, investors see plenty of opportunities in Canada. The countries vast supply of national resources alone makes it an attractive place to invest.

The last 12 months have seen the loonie climb 10% against its American counterpart, and an astounding 23% versus the euro. The bearish trend in the EUR/CAD pair can be partly attributed to the Greek deficit crisis. At the same time, one cannot ignore the progress the loonie has made in the past year.

Below we see the weekly chart for EUR/CAD provided by ForexYard. The pair has dropped more then 3,500 pips over the last year, with no perceived end in sight. As long as solid economic news continues to come out of Canada, it is very likely the loonie will soon establish itself as one of the premier currencies, alongside the USD and JPY.

EUR/CAD – Weekly Chart

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

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