Get the Latest USD/CAD Forex Rates & Market Analysis

Instrument description

In the Forex market, one of the most frequent traded pair is the United States Dollar (USD) with the Canadian Dollar (CAD). The USD/CAD pair is one of the popular commodity pair that also includes AUD/USD, and NZD/USD. The USD/CAD is known by the name of ‘Loonie’ in the Forex market, and it is also the name of Canadian one Dollar coin. The USD/CAD pair is heavily influenced due to changes in the prices of commodities such as timber, oil and natural gas. The USD/CAD pair is one of the seven major pairs that includes the USD.

The exchange rate of USD/CAD indicates the U.S Dollar as the base currency and Canadian Dollar as the quote or counter currency. The quote USD/CAD shows how many CAD are needed to buy one USD. For instance, if the current rate shows that 1 USD is equal to 1.35 CAD, which means it will take you 1.35 Canadian Dollars to buy 1 U.S Dollar. According to history and statistical data, the USD has always been the stronger of the two currencies.

U.S and Canada are neighbouring countries and have a strong alliance for decades. The two countries actively trade and have numerous economic agreements, partnerships and associations. Canada has huge oil reserves and also one of the leading oil producing and supplying country. U.S serves to be a large oil exporting market for Canada, which also makes its currency sensitive when it comes to U.S oil consumption and economic health.

History of USD/CAD Currency Pair

Canada is a commodity-driven economy and its currency CAD, relies heavily on oil exports, natural gas, and lumber. The shifts in the commodity prices do affect the value of the Canadian Dollar and currency exchange rate as well.

The U.S Dollar needs no introduction as it is recognized globally as the leading currency and is also paired with all the major and minor currencies of the world. The U.S Dollar was named introduced and made official currency by U.S Congress in 1792. Canada removed the colonial pound back in the 1850s and began to use decimalized Canadian Dollar, and till 1970, the CAD was attached to the USD but then became a free-floating currency.

The trade relationship between the U.S and Canada has always played a crucial role in the performance and stability of the USD/CAD pair. By the end of 2015, the contribution of total exports from Canada to the U.S was more than 75%, and more than 50% imports from the U.S. On the contrary Canada is also a hub of U.S exports and the second-largest trading partner of U.S after China.

Canada is the largest provider of oil to the U.S and accounts for up to 40% of all the goods that the U.S imports. The sudden changes in crude oil prices directly affects the exchange rate of USD/CAD. The slump in oil prices in 2009 along with exchange rate volatility resulted in a significant impact on the Canadian Dollar with decreasing Gross Domestic Product (GDP), economic recession, and weakening Dollar. Conversely, the low energy prices resulted in an economic boom and increasing GDP for U.S.

The crude oil value depreciated again from September 2014 to February 2015, but the value of the USD/CAD pair appreciated, which is a sign for traders to take advantage from a commodity pairing. The USD/CAD relationship also serves as an indicator of energy commodity prices.

How to Trade USD/CAD Pair

The USD/CAD pair is a widely traded pair and sees a significant volume of daily trading. The USD/CAD is suggested to be the fifth or sixth most traded pair in the Forex market. The popularity of the USD/CAD pair means tight spreads, high volatility, and low cost of making a transaction for the traders.

Among other options you can trade the USD/CAD pair using Contract of Difference (CFD), and it gives you three advantages. The first one is that you can use leverage, which means with a small initial deposit, you can open a larger trading position. The second is that you speculate on the underlying asset and do not have to own the currency pair.

The third advantage is that you can trade in both directions, which is either go Long and Short when making a trade. For example, if you think the USD will gain strength as compared to CAD, then you would go long or Buy USD and similarly if you predict the value of USD falling in the coming days, so you go short or sell USD to earn a profit. But due to leverage there is an equal chance of magnifying your profits or losses, so you can consider to use risk management tools such as stop loss to minimize the risk of financial loss.

How to read the Price Change in USD/CAD Pair

The USD/CAD pair is a popular trading option for the young traders and also among the veteran investors. The USD/CAD is traded 24/7, but the best time to trade is when the market is most active, and that tends to be from 8:00 A.M to 5:00 P.M according to U.K. timings. The USD/CAD pair sees heavy volumes of trading during the day during the major market news and announcements.

If we take a look at the price chart of the USD/CAD pair, we see a considerable low value of 1.3218 on February 21, 2020. Since then the USD/CAD pair has seen an upward trend and reached a high value of 1.4519 on March 18, 2020, and currently, the USD/CAD pair sits on 1.3543. The Bid price or willingness of traders to buy USD is 1.3546, while the Asked price or traders willing to sell USD IS 1.3544.

The simple rule to follow when trading USD/CAD pair is that when the exchange rate of USD/CAD is rising, it means that USD is gaining strength against the CAD. Similarly, when USD/CAD value is falling, it shows that CAD is increasing as compared to USD. The USD/CAD pair has a positive correlation with commodity prices such as oil. The USD/CAD pair has a negative correlation with other currency pairs such as GBP/USD, AUD/USD, and NZD/USD as USD is the counter currency.

What causes price change in USD/CAD pair?

The exchange rate of USD/CAD is affected by several factors that also individually influences the USD and CAD value in relation to each other and also when compared with other currencies. The central banks in both U.S and Canada play a crucial role in devising a monetary policy and also determining the interest rates. The U.S Federal Reserve also known as the Fed releases the monetary policy, manages the interest rates, and also take steps to keep the inflation and unemployment to the minimum.

If the Fed intervenes in the open market to make the value of USD strong, the USD/CAD pair will increase as it will take a trader to pay more CAD to buy the stronger USD. The news and reports released by the Fed allow the traders to judge the market direction and speculate the price movements. The Non-Farm Payroll numbers in the U.S released by Bureau of Labor Statistics on Friday of each month also influences the value of USD and the subsequent USD/CAD exchange rate.

The Bank of Canada (BOC) on the other hand, also issues news and reports and decides on matters such as interest rates, inflation, and employment rate. But Canada is one of the leading economies with large exports of oil, minerals and woods and being a neighbour and trade partner of U.S has helped Canadian Dollar to maintain its strong value and presence in the Forex Market.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.