Learning Currency Trading – Part 5: USD/CAD

The symbol USD/CAD stands for U.S. Dollar/Canadian Dollar. This short form articulates the number of Canadian Dollars one needs in order to obtain one US Dollar. In the symbol, the US dollar is the base currency while the Canadian Dollar is the counter currency.

This currency pair is referred to as “loonie” by many forex traders and economic experts owing to the introduction of a loon at the rear of the Canadian dollar. Often, the Canadian dollar is regarded as the commodity currency based on the fact that raw materials make up a major portion of the country’s export base.

General Facts and Information

The USD/CAD happens to be the world’s seventh most heavily traded currency pair. The Canadian dollar is one of the three commodity currencies as the country’s major exports are predominantly natural resources. It is to be noted that the economy of Canada is dependent mainly upon the GDP (Gross Domestic Product) per capita.

Canada is rich in natural resources of which timber, oil and natural gas are the most important. As would be discussed later, the relative weakness and strength of the CAD, thus, would be heavily reliant on abiotic factors such as weather and soil.

The importance of the currency pair is further increased by the location of the Canada and the United States. Since Canada is juxtaposed very close to the United States, the trade and the currency of one state directly affect the other. At times, depending on various economic and political factors, both currencies in the pair might be complementing one another.

Factors Affecting the Pair

Interest rate tops the list of the factors that have the most evident effect on the direction of the currency pair. Besides interest rate, the USD/CAD currency pair exhibits a very interesting relation. In the event that the value of CAD increases, the exports of the country are most likely to suffer a decline, hence negatively affecting the Canadian economy. As oil is the most important Canadian export, a change in the demand of oil in the international market can leave the CAD weak. As the US and Canada share a very close physical and trading relationship with another, with US being the immediate importer of Canada’s commodities, the trading practices of one can have a long-lasting effect on that of the other. Canada’s exports can be severely damaged by drastic climatic changes and natural disasters, which make the USD/CAD pair a bit more uncertain.

The USD, on the other hand, is also effortlessly affected by the Fed, labor markets and GDP; the USD can be regarded safe only when the internal and external factors affecting the US are well under control.

As a whole, the pair is celebrated by forex traders and traded heavily on a daily basis that increases its liquidity and volatility.

Taking Advantage of News Trading to Make Money While Trading

Currency trading news is heralds for the next change in the market that provides traders with data that is essential for preventing major losses. Factors that affect the market and its trends are specifically more operational in the time prior to the business hours and after them. Being up to date with the latest economic indicators, news and events is a healthy activity maintained by innumerable successful forex traders.

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