Canadian Dollar Dec '21 (D6Z21)
|Tick Size||0.00005 points ($5.00 per contract)|
|Contract Size||CAD 100,000|
|Trading Hours||5:00p.m. - 4:00p.m. (Sun-Fri) (Settles 2:00p.m.) CST|
|Value of One Futures Unit||$100,000|
|Value of One Options Unit||$100,000|
|Last Trading Day||First business day preceding third Wednesday of expiring month|
A "currency" rate involves the price of the base currency (e.g., the dollar) quoted in terms of another currency (e.g., the yen), or in terms of a basket of currencies (e.g., the dollar index). The world's major currencies have traded in a floating exchange rate regime ever since the Bretton-Woods international payments system broke down in 1971 when President Nixon broke the dollar's peg to gold. The two key factors affecting a currency's value are central bank monetary policy and the trade balance. An easy monetary policy (low interest rates) is bearish for a currency because the central bank is aggressively pumping new currency reserves into the marketplace and because foreign investors are not attracted to the low interest rate returns available in the country. By contrast, a tight monetary policy (high interest rates) is bullish for a currency because of the tight supply of new currency reserves and attractive interest rate returns for foreign investors.
The other key factor driving currency values is the nation's current account balance. A current account surplus is bullish for a currency due to the net inflow of the currency, while a current account deficit is bearish for a currency due to the net outflow of the currency. Currency values are also affected by economic growth and investment opportunities in the country. A country with a strong economy and lucrative investment opportunities will typically have a strong currency because global companies and investors want to buy into that country's investment opportunities. Futures on major currencies and cross-currency rates are traded primarily at the CME Group.
Dollar - The dollar index (Barchart.com symbol DXY00) in 2019 traded mildly higher through September but then fell back later in the year, finally closing the year little changed. The dollar saw support during 2019 from a solid U.S. economy, which did significantly better than Europe or Japan. U.S. real GDP in 2019 grew by +2.3%, which was down from 2018's strong pace of 2.9% but stronger than the U.S. economy's long-term potential growth rate of +1.9%. In a bearish factor for the dollar, the Federal Reserve cut its federal funds rate target three times during 2019 for an overall 0.75 percentage point rate cut to 1.50%/1.75%. Even after that rate cut, however, the absolute level of U.S. interest rates remained substantially higher than European or Japanese interest rates. The dollar therefore continued to see capital inflows from overseas investors chasing higher yields. The dollar also saw support in 2019 from the huge amount of overseas debt that traded with negative yields, which reached a record high of $17 trillion in August before falling back to close 2019 at $11 trillion. Foreign investors poured money into dollar-denominated securities to flee their own countries that carried negative interest rates. The dollar index then temporarily spiked higher in March 2020 when the coronavirus pandemic caused a plunge in the global stock and corporate bond markets and caused fears about a new financial crisis. The dollar index spiked higher on massive emergency demand for dollar liquidity around the world. However, the dollar index fell back after the Federal Reserve used new and expanded dollar swap lines with most major foreign central banks to meet that overseas demand for dollar liquidity.
Euro - EUR/USD (Barchart.com symbol ^EURUSD) trended mildly lower during 2019 and closed the year down -2.2%. EUR/USD was generally weak during 2019 as Eurozone GDP growth in 2019 slowed to +1.2% from much stronger rates of +2.5% in 2017 and +1.9% in 2018. The Eurozone economy was undercut by trade tensions, political uncertainty, and a weak manufacturing sector. The European Central Bank (ECB) maintained a highly stimulative monetary policy all year, which was a major bearish factor for the euro. The ECB ended its previous quantitative easing (QE) program in December 2018 but was forced to begin a new QE program in November 2019 in order to provide fresh stimulus to the economy. The new QE program involved the purchase of 20 billion euros per month of Eurozone sovereign bonds. The ECB in September 2019 was also forced to cut interest rates again with a -10 basis point cut in its deposit rate to -0.50%. The euro showed fresh weakness in early 2020 when the coronavirus pandemic hit Italy and Spain particularly hard and ensured that Europe in 2020 would see a painful recession.
Yen - USD/JPY (Barchart.com symbol ^USDJPY) fell to a 3-1/2 year low in August 2019 but then recovered later in the year and closed the year slightly lower by -1.0%. The yen was undercut during 2019 by a weak Japanese economy with real GDP growth of only +0.7%, slightly better than 2018's dismal growth of +0.3%. Japan's GDP took a sharp hit of -7.1% (quarter-quarter annualized) in Q4-2019 after the Japanese government on October 1, 2019, raised the national sales tax to 10% from 8% to chip away at Japan's huge national debt. The weak Japanese economy forced the Bank of Japan during 2019 to maintain its extraordinarily easy monetary policy, which was bearish for the yen. The BOJ during 2019 kept in place its policy rate of -0.1% and its yield-curve control policy of targeting the 10-year Japanese government bond (JGB) yield at a mid-point of zero. The BOJ also maintained its quantitative easing (QE) program with an annual target of 80 trillion yen ($740 billion). The yen then saw a temporary surge in the first half of March 2020 when the coronavirus pandemic produced sharply increased demand for the yen by Japanese investors, who needed to repatriate cash home from overseas investments and build reserves for the end of the fiscal year on March 31, 2020.
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