Currency traders are forever search ing for a single answer to the riddle of what drives both an individual currency and the DXY. The answer, both fortunately and unfortunately, is there is not one answer, but rather a group of answers.
The interest-rate gap between the CAD and USD is a piece of the puzzle, but we need to analyze it in terms of the yield curve and both long- and short term interest rates. Cross-border trade flows are almost irrelevant. To call the CAD a commodity currency is an oversimplification; as we have seen, it is really a financial flow currency wherein the flows are driven in large part by commodity indices such as the CRB.
The unfortunate part is the complexity. The fortunate part for traders is the rewards will go to those who understand this and do their homework. As always, the rewards do not go to the lucky, but to the prepared.
Subscribe to:
Post Comments (Atom)
Post a Comment