Within the hard currency group, the Canadian and Australian dollars are sensitive to commodity prices but they weather these dips better than other countries much more dependent on commodities. For example, the collapse of energy prices in 2014 hurt both the Australian and Canadian markets, but it was far more devastating for the Russian ruble. That said, a depreciation in a nation’s currency is usually result of either an increase in the money supply or a loss of confidence in its future ability as a store of constant value, because of either economic, financial or governmental concerns. A striking example of an unstable or a soft currency is the Argentinian peso, which in 2015, lost 34.6% of its value against the dollar, making it highly unattractive to foreign investors.3
The value of a currency is mostly based off of economic fundamentals such as gross domestic product (GDP) and employment. The international strength of the U.S. dollar is reflective of America’s GDP which, as of 2019 current prices, stands first in the world at $21.37 trillion. China and India have the second and fifth, respectively, ranked GDPs in the world at $14.34 trillion and $2.88 trillion, but neither the Chinese yuan nor the Indian rupee is considered a hard currency.4 This underscores how central bank policies and stability in a country’s money supply also factor into exchange rates. There is also a clear preference for mature democracies with a transparent legal system.