Last update: 13 May 2020
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CAD/USD Forex Pair

The USD/CAD pairing is one of the more popular currency pairs in Forex trading, representing the US Dollar to Canadian Dollar (sometimes known as the Loonie), this is one of the seven major pairs that contain the US Dollar, and is a very liquid currency pair due to the large trading amounts on this pairing. Depending on the interest rates set by the Bank of Canada and the US Federal Reserve, the value of Canadian to US Dollars will fluctuate. Traditionally the value of the Canadian Dollar reflects the movement of the US Dollar, rising against the American currency while falling simultaneously against the other international currencies. Since about 2002, the Canadian Dollar has consistently risen against the US Dollar, and also against other international currencies. The CAD is also a volatile petrocurrency due to the major role of Canada as one of the world’s top oil exporters. Generally, the USD/CAD pairing has a negative correlation with several currency pairs, including NZD/USD, AUD/USD and GBP/USD.

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Information About the US Economy and the USD

Sometimes known as the Greenback, the US Dollar is the official American  currency, but is also the official currency of the USA’s insular territories. Each dollar is divided into 100 cents, sometimes referred to as pennies. The dollar is the world’s most popular currency for international transactions, as well as being the primary choice for foreign currency reserves. It is also used as the official currency for many smaller nations, as well as in two of the Caribbean British Overseas Territories – the Turks and Caicos Islands and the British Virgin Islands. In some countries, only paper-money US Dollars are used, while the US nation uses its own minted coins. America has the largest national economy in the world cad usd trading in nominal terms, and it is also the second largest global economy in terms of Purchasing Power Parity, with the GDP of the United States being around $17 trillion. The USA has maintained a stable rate of growth in its GDP thanks to moderate rates of unemployment, a mixed economy and a high level of capital investment. The nation trades most frequently with Canada, Mexico, China, Germany, Japan, the UK and South Korea, and has plenty of natural resources as well as high productivity and a developed infrastructure. The United States is also the largest producer in the world of natural gas and oil, as well as being the second-largest global manufacturer, responsible for 20% of the world’s manufacturing output. Not only that, but the United States also dominates the service industry, with 128 of the world’s 500 biggest companies having their headquarters in America.

Guide to the Canadian Dollar

As the tenth largest nominal economy worldwide, Canada is one of the wealthiest nations in the world. Like most other developed countries, the economy of Canada is dominated by its services industry, in which are 75% of Canadians are employed. However, unusually among other developed countries, the Canadian economy also places a large emphasis on the primary sector, such as oil and logging. The country has a large manufacturing sector, primarily located in central Canada, and its aircraft and automobile industries are especially important. Canada’s commercial seafood and fishing industry is also important, as is the entertainment software industry.

Much of the Canadian economy is made up of international trade thanks to the country’s abundant natural resources. Around 60% of the country’s total exports consist of forestry, agriculture, mining and energy, and exports as a whole account for around a third of the country’s GDP. Canada’s largest trading partner is the United States, and the country exports almost three quarters of all of its goods to the USA every year. The Canadian dollar is sometimes known as the loonie because of the image of a loon displayed on the $1 coin. It is the fifth most popular global reserve currency, and accounts for around 2% of all global reserves, with only the US Dollar, Euro, Yen and Pound Sterling ahead of it. As Canada is relatively economically sound with a strong government and a stable political system, its currency has found great popularity with world central banks.

Which Factors Come Into Play When Determining the USD/CAD Exchange Rate?

The supply and demand levels of the Canadian Dollar are affected by the level of activity within the Canadian economy when compared to the activity being experienced in the US Dollar. When Canadian business activity increases, the Canadian dollar’s value will rise due to increased demand, and the demand is pushed higher when foreign businesses choose to invest in Canadian enterprises. Another factor with a significant effect on the Canadian Dollar’s exchange rate is the monetary policy executed by the Canadian Government and the Bank of Canada through the control of interest rates and the issuance of bank notes. The Canadian economy is very closely linked with that of the United States, due to it being the nation to which it exports the majority of its goods. As a result of this, their currencies have a particular correlation to each other, with Canada enjoying a positive correlation in relation to crude oil. Any major US economic announcement will therefore also have an impact on the USD/CAD pairing. Canada boasts enormous oil reserves, and is one of the world’s biggest oil exporters. America, on the other hand, is a large consumer of oil and receives the majority of its oil requirement from Canada. This is one of the reasons for the strong links between the two economies, and should the price of oil fall, the Canadian economy will feel the impact, with the Canadian Dollar taking a drop. When this happens, the CAD weakens against the value of the USD, resulting in falling oil prices benefiting the US economy. While oil is priced in USD, the American currency does not suffer from falling oil prices, as most central banks hold their reserves in US Dollars, and therefore there is no direct negative impact on the United States’ economy.

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