02 Jan TRADING EDUCATION: USD CAD
The Canadian Dollar is often called ‘The Loonie’ because of the picture depicting a loon on the Canadian $1 coin whilst the USD is often referred to on US trading floors as the Greenback. Due to both halves of the USD/CAD having their own nicknames the USD CAD is known colloquially within forex trading as simply the Dollar-CAD.
Due to the large volume of cross-border trading activity that takes place between The United States and Canada the USD CAD is a popular currency pair, however due to the interrelationship of the two economy’s the USD/CAD can often see significant spikes making it a less preferable currency pair afor new traders as they learn to trade.
The USD CAD is considered a Commodity Currency pair. This is primarily due to the large deposits of natural resources within Canada, particularly Sweet Crude Oil and Natural Gas. With Canadas primary export markets for both commodity’s being the united states and the USA covering its deficit in oil production primarily via Sweet Crude Oil inventory purchases from Canada.
This type of phenomenon suggests that the USD CAD currency pair should experience negativity when consumption of oil within the US economy rises. Because of this the interest rate differential between the Federal Reserve (Fed) and the Bank of Canada (BoC), will affect the value of these currencies when compared to each other.
Changes to the level of demand from US for oil imports can often create sustained trends within the USD CAD. Because Oil demand is primarily driven by economic conditions economic announcements and economic fundamentals are key to locating the start of trends within the USD/CAD, from a technical prospective Traders can take advantage of this using RSI/CCI indicator.
It is also worth noting that when the Federal Reserve intervenes in open market activities it can have a significant impact on the USD CAD often creating a viable and sustainable new trend within the pair. The USD/CAD tends to have a negative correlation with the AUD USD, GBP USD and the NZD USD currency pairs.