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Covering the USD–CAD Spread

Will Canadian expansion make companies loony for the loonie?

Things are looking upbeat for Canada’s economy after a few years of difficulty. That is good news for the nation overall, but the trend may eliminate the trade advantage Canada has enjoyed due to its weak currency.

With the new budget that was unveiled last week, Canada is fresh off its third consecutive year of trade surpluses. One major reason for the nation’s favorable trade balance is the low value of the Canadian dollar relative to other currencies. The U.S. dollar and Canadian dollar were nearly at parity in 2012, but when global commodities markets took a nosedive, major producers like Canada were hit hard. As demand slowed for the energy-heavy exports that Canada provides the rest of the world, the value of the Canadian dollar, or “loonie,” also slipped.