While the USD/CAD gained in value yesterday, our analysis of the current condition of the USD/CAD has indicated that, while the market is considered to be currently showing weakness, the USD/CAD is unlikely to remain strong long-term. The current weakness in the USD/CAD indicates that the forces that have driven the USD/CAD to its current levels will likely continue to exert a downward pressure on the USD/CAD.
One of the primary factors that has aided the USD/CAD to its current level of weakness is the strong rebound in the prices of oil and other commodities. An over-abundance of wealth in some commodity markets has created conditions that are favorable to a price recovery and this situation is more likely to persist in the short-term.
This weakness in the commodities market will likely intensify as the labor market becomes less conducive to increased economic activity. Moreover, the need to support and further stimulate the dollar will likely be reduced by the increases in prices of energy products that have occurred in recent weeks.
The weakening in the USD/CAD over the past month has been the result of a weakness in gold and silver. As we noted in our earlier report, these metals have been directly affected by increased monetary funding for the banking system and thus represent negative forces for the dollar.
Furthermore, our analysis of the recent developments in the banking sector indicates that the large increases in deposits of deposits into the banking system are likely to continue in the near future. This creates the possibility that a rise in the demand for USD/CAD may be further delayed. If these demands do not materialize, the weakness in the USD/CAD may intensify further.
Further, our analysis of the high level of new highs in the price of gold indicates that the demand for precious metals is likely to remain strong. While the demand for gold is likely to persist, we also expect the demand for other commodities such as oil to decline somewhat over the next two years.
This is the main current weakness in the environment that supports the USD/CAD. Nevertheless, the short-term weakness in the USD/CAD is unlikely to persist in the long-term.
In the short-term, the weakness in the USD/CAD may be improved by the action of the Federal Reserve. The recent action by the Federal Reserve to maintain the current USD/CAD rate level will likely lead to an improvement in the current weakness in the USD/CAD.
Over the long-term, our analysis of the strength of the USD/CAD indicates that the weakness in the USD/CAD is unlikely to continue in the long-term. We have argued that it is likely to weaken in the medium-term, especially given the likely upward pressure that the oil price will exert on the dollar.
Further, we have noted that, in the event of a strong dollar, other commodities will likely increase in price. In this scenario, a further rise in the price of oil would make the current weakness in the USD/CAD somewhat less evident.
While it is unlikely that the weakness in the USD/CAD will persist in the long-term, the recent surge in the price of gold and silver may fuel speculation that the weakness in the USD/CAD is likely to be an ongoing, albeit short-term, situation. As the gold price continues to rise and as it becomes more readily available for purchase, it is likely to drive up the demand for the USD/CAD and give the market a major boost.