USD/CAD Trading Tips

The USDCAD is the market symbol for the US dollar (USD) to Canadian dollar (CAD) exchange rate. This currency pair is classified as a "majors" pair since it comprises the US dollar, which is often regarded as the most powerful and popular currency in the world.

Because large currency pairings are the most commonly traded, they have higher daily trading volumes, narrower spreads, and are more liquid than smaller currency pairs.

Understanding the USD/CAD Exchange price

The USDCAD currency pair indicates the exchange price of the base currency (USD) against the quote currency (CAD) (CAD). The USDCAD is an exchange rate that defines how many CAD are required to convert one USD.

To put it another way, when the price of the USDCAD pair rises, it signifies that the US dollar is gaining against the Canadian dollar. When the contrary occurs, that is, when the USD/CAD exchange price falls, the Canadian dollar gains value in relation to the USD. 

As previously indicated, the USD/CAD price quotation effectively shows the amount of dollars required to get one Canadian dollar. For example, if the USD/CAD exchange rate is 1.32, 1 USD equals 1.32 Canadian dollars.

Trading The "Loonie"

The Dominion of Canada was on the gold standard from 1854 to 1914. The Canadian dollar was valued at at the time, and it was pegged to the US dollar. This signalled the start of trade between the USD and the CAD. The USD/CAD currency combination is colloquially known as the "Loonie." The "Loonie" is a colloquial word for the Canadian dollar coin. 

The Loonie was named from the image of a bird known as a loon that appears on the reverse of the coin. Trading the Loonie requires a thorough awareness of the different variables that influence the prices of US and Canadian dollars, both in regard to one another and to other global currencies.

For example, the relationship between the Bank of Canada and the US Federal Reserve will impact the value of the two currencies in respect to each other. When the Federal Reserve intervenes in open market activity in an attempt to strengthen the US currency, the USD/CAD cross rises in value since it takes more Canadian dollars to acquire a stronger US dollar.

 Other economic and political influences on both sides of the border may also influence the USD/CAD exchange rate. Factors like as oil and zinc, as established by the Bank of Canada (BoC), national debt levels and budget deficit, and the strength of ties between the US and Canada, for example, may all have an influence on the CAD.

Meanwhile, the rate of the USD might be influenced by the Federal Reserve's interest rates, the US unemployment rate, the, international trade agreements, levies and tariffs, political events, consumer saving and household income rates, and many other factors. It is also worth noting that the USD/CAD currency pair has a similar to the and NZD/USD crosses since their quotation currency is the USD.

USD/CAD Highs and lows in the past

Commodity prices, particularly oil, have a strong association with the value of the Canadian dollar. Because Canada's economy is primarily dependent on oil exports, the health of the Canadian economy and the value of its currency are determined. 

The price of oil fell to a decades-low in 2016, selling at less than $30 a barrel. At the same time, the Canadian currency fell to a low of 1.46 CAD per US dollar. The Canadian dollar has historically hit an all-time high of 1.61 in January 2002 and a record low of 0.92 in November 2007.

The NAFTA Agreement's Impact on the USD/CAD

The North American Free Trade Agreement (NAFTA) was replaced in September 2018 after months of negotiations and heated rhetoric. The United States and Canada reached an agreement that would see Canada join a trilateral trade treaty between Mexico and the United States, rebranded as the USMCA (United States-Mexico-Canada Agreement). 

Unsurprisingly, the talks and agreement had a significant influence on the in general, and the USD/CAD in particular. During the months of discussions, there was a shift in opinion toward the US or Canada, which influenced the value of the currency pair.

 Following the announcement of the agreement, the value of the CAD skyrocketed, resulting in a four-month low for the USD. The Canadian dollar gained approximately 0.7 percent, hitting a four-month high of C$1.2814, before reversing some of its gains.

USD-CAD Frequently Asked Questions

Why is the USD/CAD currency pair so essential to traders?

As one of the most actively traded currency pairings, forex traders keep a close eye on the USD/CAD at all times. The tight economic links between the United States and Canada, along with Canada's vast quantities of natural resources, may make this partnership exceedingly turbulent at times. Rapid fluctuations of hundreds of pips are not uncommon in the USD/CAD pair.

 It is worth noting that the pair is quite sensitive to oil prices, with the Canadian dollar often increasing and dropping in unison with crude oil prices.

When is the most advantageous moment to trade the USD/CAD?

As you would expect, the optimum time to trade this pair is during the North American trading session, when there is the most liquidity and volatility. That is the busiest time for both US and Canadian dealers. Interestingly, the pair has the most daily volatility on a Friday, perhaps owing to traders changing positions before the weekend. Traders should expect some action in the pair at the start of the Asian sessions, but this is usually relatively modest.

What is an effective USD/CAD trading strategy?

The USD/CAD has a propensity to make large swings quickly and then consolidate for a long length of time. As a result, trading the pair using basic technical methods has grown in popularity. One of them is to trade the pair on rebounds from trend lines or support and resistance levels. 

This is a consistent method that generates a lot of little gains over time. Another more aggressive technique is to look for the pair's imminent breakout movements, which may result in big returns in a short period of time.