USD/CAD - The US dollar vs. the Canadian dollar is a popular currency pair in Forex markets. Let's see what factors influence its quotes and which are the main trading methods.

Some history

Canada has the most territory in North America. Named "kanata", the name denotes "settlement, Land" in the language spoken by local Indian people. Canada's history began in 1534, when Jacques Cartier, a French seafarer, explored the country. The territory of Quebec was home to one of the first French colonies. It was initially populated with indigenous people.

Canada is a federative nation that includes ten provinces as well as three territories. The country switched to the Canadian dollar in 1850s when it abandoned the colonial Canadian pounds. The slang name for traders is "loony", which comes from the name of the bird on a 1 dollar coin. This bird is Canada's mascot. The CAD is a freely tradable currency that has existed since 1970. It is regulated by the Bank of Canada (the Central Bank of Canada).

The CAD is a very popular currency and participates in 3% of all international trade transactions. A large number of countries with high-ranking leaders keep some of their gold reserves in the Canadian Dollar. The CAD is one the seven Forex majors thanks to its free conversion and high volatility.

USD/CAD trading characteristics

USD/CAD shows the relationship between the US dollar and the Canadian dollar. This is how many Canadian dollars it will take to purchase one US dollar. The USD is stronger than the CAD due to the USD/CAD ratio. The USD/CAD falls and the CAD is stronger against it.

These are some of the trading characteristics for USD/CAD

• Trading hours: The pair trades 24 hours a day, except on weekends and holidays. The pair's volatility and trading volume peak during the American trading session, when significant economic statistics from Canada and the USA are published. This influences the quotations.
• Volatility: USD/CAD can be quite volatile. The average daily movement is between 80 and 100 points. For a brief time, volatility can spike to 200-300 points per day in strong surges.
• Spread: This pair is major enough that the spread can be small and it is also popular. It amounts to approximately 1-1.5 points on popular ECN accounts under normal market conditions.

What factors affect USD/CAD quotes?

USD/CAD dynamics is an indicator of the economic state in Canada and the USA. These are the key factors that affect the dynamics of the pair.

The Fed and BoC have different monetary policies

The CBs of Canada (USA) and Canada influence the quotes of the pair in a significant way. USD/CAD will grow if the Federal Reserve System increases the interest rate, but the Bank of Canada does not change it. The reverse is true: If the BoC raises interest rates while the Fed policy remains neutral, then the Canadian dollar will grow and USD/CAD will fall.

Oil prices around the world

The price of crude oil, which is the main commodity that determines the rate of "loony", heavily influences the rate at which it will be charged. Canada is a major exporter and main market for natural resources, particularly oil. Oil prices have a significant influence on the exchange rate. The Canadian dollar is part of the commodity group.

These currencies tend to fall when the investment climate is worsened and the demand for commodities falls. The contrary is true for the CAD.

Oil prices rise, and the USD/CAD quotes fall. The Canadian currency increases. When oil prices fall, the USD/CAD quotations rise (the Canadian currency falls).

Canada and the USA: Economic indicators

The statistical offices of Canada and the USA regularly publish economic indicators that describe the current economic situation. These statistics may have an impact on USD/CAD quotes:

• Statements and comments by CB heads and other major politicians in the USA and Canada
• Unemployment Rate
• Non-farm Payrolls
• GDP
• CPI and PPI
• Industrial Production
• Trade Balance

Learn more about economic indicators by reading our article on fundamental analysis in the blog:

Trade USD/CAD

You can use tech analysis, fundamental analysis and indicators to trade the pair.

Analyse fundamental

This analysis analyzes several fundamental factors, including economic statistics, the expectations of changes in interest rates, and the current trend on global currency markets and commodity markets.

Example:

Global oil prices fell quickly in 2020 after the pandemic caused the stock market to crash. Two factors simultaneously influenced the CAD at that time: The US dollar was increasing because investors were fleeing from risk, and oil prices were dropping. The USD/CAD exchange rate was rapidly growing. One could purchase it and keep it until the crisis ended and economic recovery begins.

Tech analysis

This method relies on an accurate analysis of the chart for the currency pair. This method uses tech analysis, original methods and candlestick combinations.

Example:

• A trend continuation pattern known as Flag was formed on H1 of USD/CAD during an uptrend.
• After the price breaks the upper border of a pattern, open a buying position.
• Place a Stop Loss just below the lower line of your pattern. The Take Profit is at the distance of any previous point movement (H).

Indicators are used to trade

Indicators are used in this trading strategy. These indicators can be either complex or simple. Expert advisors can use indicator signals to automate your work.

Example:

Consider a simple indicator strategy, Return to Average. This strategy was once described in our blog.

• When the price bounces above the upper border of Bollinger Bands channel, a signal to sell is given. A Shooting Star reversal pattern may also be formed.
• Place your SL below the local price chart high when opening a new position.
• When the middle line of the indicator channel has been reached, take the profit.

Closing thoughts

Forex traders are able to use USD/CAD because of its liquidity, volatility and small spread. Different methods are used to make trading decisions, such as analysis of economic statistics, price charts and indicator signals.

Start by creating a demo account to practice, and then you can switch to a real account.

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