The Canadian dollar is currently sitting close to fair value relative to the recent drop in commodity prices, Garry Cooper, a strategist at UBS said.
He said the UBS’s trade-weighted basket of commodities pointed to a fair value in the $0.87 to $0.88 range. The Canadian dollar was trading at $0.86.5 on Tuesday at 1:00 pm ET.
Mr. Cooper said:
The Canadian dollar has had a 0.96 correlation to UBS’s basket of commodity prices since 1996. Our fair value estimate is updated to include $84 oil, $7.35 natural gas, $830 gold and $2.50 copper, among others.
He said Canada’s strong economic fundamentals have helped to prevent the Canadian dollar plummeting further amid recent risk averse trades.
By way of contrast, the Australian dollar plunged by C$0.30 from its C$0.96 level last summer, and is well below that suggested by its currency basket. Accordingly, they were subject to the wave of risk aversion that gripped markets in addition to the direct impact from commodity prices, while the Canadian dollar was not.