Canadian dollar surges on U.S dollar weakness: what it means for ag commodities

Many Canadian ag exporters may have wished that they had hedged the dollar a bit more. The Canadian dollar has climbed recently, making its way back to pre-COVID levels, around the US$0.755 mark. It’s hard to know what to expect for the second half of 2020.

Jon Driedger of LeftField Commodity Research recently joined Shaun Haney on RealAg Radio to chat about what’s behind our seemingly strong dollar and what it will mean for the markets.

Some of the markets have settled a bit lately, so what’s going on and how do we look at this currency in the next few months? “In this context, I don’t think this sort of a pro-Canadian dollar story, per se,” says Driedger. “This is a consequence of the U.S. dollar coming under severe pressure recently,” he adds. (Story continues below player)

The USD index is at its lowest in the past few years and is weighted heavily to the euro and the yen. Compared to Brazil’s currency, the USD is weakening. The prices of gold and silver have been rising, as has crude oil, and there’s still a long road to recovery for such commodities.  All of this is more a reflection of the domino effect of the U.S. dollar weakening, Driedger says.

Long-term, Driedger thinks the USD is still the best currency globally, but is caught in a negative sentiment and only time will tell as the U.S. election comes up in November. There will be a lot of volatility going forward and currencies are a big part of the economic backdrop.

The movement of the CAD by seven cents will no doubt make a big impact on prices at the farm gate. “These are big, deep, liquid markets,” says Driedger, “So when you see sharp, abrupt moves, there’s a lot of capital that’s required to force those moves, which is a reflection of the underlying turmoil in these broader markets,” he adds.

As much as it seems like we’re losing ground as the CAD increases, that might not be the case for all crops in all markets, says Driedger. Not everything is going to suffer.

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