Trading USD/CAD

The USD/CAD is widely recognized as one of the most heavily traded currency pairs globally, mainly due to the high volume of cross-border trading between the United States and Canada. Additionally, the USD/CAD is considered as part of the major forex group because it includes the influential US Dollar, while the Canadian Dollar is categorized as a commodity currency. It’s crucial to note that this pair offers rich volatility, high liquidity, and tight spreads, making it an attractive option for online traders worldwide.

If you’re interested in learning more about the history of the USD/CAD, its advantages and disadvantages, technical analysis, trading strategies, suitable investment times, and much more, keep reading. We’ve also compiled a list of the best brokers for trading USD/CAD below.

Why Trade USDCAD?

The USD/CAD is the fifth most traded forex pair globally and is frequently featured on popular trading platforms and exchanges. But what makes it a worthwhile investment for you?

• Prevalence – It is one of the most traded pairs in the FX market, representing a significant quota of daily trade. The US Dollar is also the world’s leading reserve currency.
• Volatility – As the pair is widely traded, it leads to high volatility, thus providing tight spreads. This ensures plenty of opportunities to make trades and profit from price fluctuations.
• Resources – With the number of tools available nowadays, short and long-term forecasts are easier to make.

Live candlestick charts, for example, help you access real-time and historical graphs with customizable indicators and pivot points.

Canada Influence

• Oil exports – Canada is one of the world’s largest oil exporters, and oil pricing can significantly impact the Canadian economy.
• Interest rates – The Bank of Canada sets interest rates, which can impact the value of the Canadian dollar.
• Higher interest rates can attract foreign investors, leading to an increase in the value of the Canadian dollar.
• On the other hand, lower interest rates can lead to a decrease in the value of the Canadian dollar.
• Political stability – Political instability can lead to a decrease in investor confidence and a decrease in the value of the Canadian dollar.

Therefore, monitoring the political climate in Canada is essential in predicting future USD/CAD movements.

Conclusion

Trading the USD/CAD pair can be a profitable venture, but it requires careful analysis and risk management.

Factors such as volatility, leverage, and automated competition must be taken into account.

Additionally, monitoring the influences on the currency pair’s movement, such as balance of trade, oil exports, and political affairs, is crucial in making informed trading decisions.

By staying updated on market news and utilizing technical analysis, traders can potentially profit from the unique qualities of the USD/CAD currency pair.

It is useful to pay attention to America’s economic indicators and industry, such as manufacturing growth, employment growth, level of outsourcing, and wage data as they can impact the value of the US Dollar.

• Interest rates – Investors aim to benefit from higher interest rates.The Federal Reserve Bank’s decisions regarding monetary policy significantly affect the value of the Dollar.These reports can provide insight into the future direction of the currency.

Canadian Impact

• International trade – When exports surpass imports, it creates upward pressure on the exchange rate.On the other hand, a trade deficit will put downward pressure on the Canadian Dollar.
• Interest rates – Comparable to the USD, higher interest rates in Canada will attract investment.

Notably, the Bank of Canada’s decisions to increase or decrease interest rates can influence the CAD’s future performance.

• Commodity prices – As a commodity currency, the value of the Canadian Dollar strongly correlates with the world’s live commodity prices.Commodities make up a significant portion of Canada’s exports.Thus, when the price of oil rises, the country’s goods become more valuable.

• With an increase in purchasing power, this movement will be reflected in a higher exchange rate.

Currency Correlations

What may not be clear when trading on your USD/CAD live chart is the effect of currency correlations.No single pair trades completely independent of other currencies.These relationships varying by dates are known as positive and negative correlations:

• Positive correlation – This means that pairs move in the same direction.For example, popular pairs, GBP/USD, AUD/USD, and EUR/USD, are all positively correlated.This is an outcome of the US Dollar being the counter currency.Any changes to the US Dollar will affect all pairs.
• Negative correlation – When currency pairs move in opposite directions, they are negatively correlated.

Popular pairs include <a href=”/usdchf”>USD/CHF</a>, <a href=”/usdjpy”>USD/JPY</a>, and USD/CAD.This is a result of the US Dollar being the base currency.Negatively correlated currencies will suit hedging trading strategies.

Application

A USD/CAD trader can use this information to better understand the consequences of movement in certain pairs.But it is important to note that correlations do not always remain stable.For example, USD/CAD had a strong positive correlation with a coefficient of 0.95.However, the relationship deteriorated down to 0.28.Many factors can affect this, such as economic impacts or decisions made by the Fed or BoC.

USD/CAD Trading Strategy

To trade USD/CAD effectively, it takes more than just analyzing signals and keeping up with the latest news and pre-market sentiment.It also takes more than using pip values to your advantage.Below are some useful options and considerations.

Timing

When day trading in the forex space, timing is everything.FX trading may be available 24/7, but it doesn’t mean you should buy and sell all day.Instead, you want to trade when the USD/CAD pair is active, with plenty of volume and volatility.The danger is if you trade at the wrong times, the cost of spreads and commissions can cancel out profits.

Trading sessions in Canada and the US coincide, which means longer trading sessions, but it can also mean more profit.Of course, higher trading volumes also make USD/CAD a lot riskier to trade with.

Ideal Window

So, when is the best time to day trade USD/CAD? The ideal time for trading USD/CAD is from 08:00 to 17:00 EST, which is the entire North American trading session.

During this nine-hour window, trading volumes are at their peak, and you have better leverage. Interestingly, the pair also sees its greatest daily volatility on a Friday, which can be due to traders adjusting positions ahead of the weekend. Spreads are normally tightest during this window, which can result in the greatest opportunities to generate profits. During this window, forex forums are also active.

All these factors can result in the biggest profit potential. Therefore, you should make sure to check for intraday volatility and invest your trading capital during this time slot.

Buying & Selling USD/CAD

The USD/CAD has a tendency to make solid moves promptly, which follows a considerable period for consolidation. So, live charts and technical analysis will often be needed to succeed in trading this FX pair.

Trading the USD/CAD can be based on some simple technical strategies. For example, you can trade based on bounces from trend lines or support and resistance levels. This steady strategy can supply many small profits over a period of time. On the other hand, traders can opt for a more aggressive strategy that delivers large profits in a short period. This involves watching out for inevitable breakout moves from the pair.

The most intense trading sessions occur at the release of economic reports such as non-farm payrolls, unemployment rates, economic sentiment, manufacturing, and non-manufacturing activity growth.

Thus, trading during these events without the help of technical analysis can be done using a proactive, a reactive, or a mixed strategy.

Proactive trading involves entering a position ahead of the release of today’s data, for example, and basing your decision on forecasts. A reactive approach involves entering the market after the data is published. Finally, a mixed approach combines the two.

News

The latest market news updates on the USD/CAD currency pair can quickly impact market sentiment and create price shifts. You can capitalize on the right moments, but only if you understand how the markets reacted historically.

Since this pair is significantly affected by the oil sector, you should be aware of OPEC meetings that involve oil-selling countries like Canada and the USA. These deliberations can help you forecast which currency will have bigger demand in the future. You should also keep an eye on the decisions made by the Fed and BoC. As mentioned before, these two banks make important decisions on interest rates and monetary policy, which have a large effect on the value of the USD and CAD.

Make sure to keep on top of the latest news updates, along with daily, weekly and monthly forecasts. Utilize technical analysis on live charts, the latest spot exchange rate, plus forecasts and forums. The following are some popular resources:

• XE calculates real-time daily exchange rates and quotes
• TradingView provides charting tools, market news, and real-time information on currency conversions
• IG is a leading forex trading platform with excellent tools alongside 5-year, 10-year, and 20-year charts

History

Before you start live chart investing, it is helpful to have an understanding of the USD/CAD history:

Early History

The US Dollar was created during The Coinage Act of 1792, when the United States Congress appointed it as the country’s currency.

Banknotes were introduced into circulation in the mid-1800s.

In 1913, the Federal Reserve Act created the central bank of the US.

The USD is still regarded as the world’s unofficial reserve currency after the introduction of the Bretton Woods monetary system in 1944.

On the other hand, in the early 1850s, Canada departed from the colonial pound sterling and shifted to the Canadian Dollar.

Until 1970, the CAD was attached to the USD, but it is currently a free-floating currency controlled by the Bank of Canada.

It’s also nicknamed as the ‘loonie’, derived from the loon bird that appears on Canadian Dollar coins.

Recent History

Historical exchange rates of the USD/CAD were affected by key events.

The Canadian Dollar reached parity with the US Dollar on September 20, 2007.

It had been the first time in close to 31 years.

Other points of USD/CAD parity were after the Great Recession when the Federal Reserve had subsequent quantitive easing.

The Canadian and US Dollar eventually reached a parity of 0.95.

In fact, most instances of parity were related to periods of financial difficulty in the US or during high oil prices.

For example, in 2016, the price of oil slumped to a low, trading at less than $30 per barrel.

During this time, the Canadian Dollar hit a record low of 1.46 CDN to the USD.

The USD to CAD FX rate between 2008 to 2018 has been anywhere between 0.94 and 1.46.

The two have been relatively close in value over the decade.

From 2011 to 2012, the CAD was worth more than the USD.

This was when the USD/CAD exchange rate briefly dipped below 1.00.

Since then, the US Dollar has shown a steady increase in value against the Canadian Dollar, particularly in mid-2015.

The US Dollar was also in a general uptrend against most other major currencies during this time.

The influence of oil was felt again during the Covid-19 pandemic when oil prices fell to sub-zero.

The CAD/USD rate reached 1.45.

Although the CAD has since recovered, the effects can still be felt in 2023.

This is in part due to Canadian inflation reaching a 31-year high of 6.7% in March 2022.

Note, the USD/CAD reached an all-time high of 1.62 in January of 2002; and an all-time low of 0.92 in November 2007.

Role Of The USD

After understanding key events in the USD/CAD timeline, it is important to grasp the role of the US Dollar to make future rate predictions.

The United States is the world’s largest economic power, representing almost 25% of the global nominal GDP.

The country’s economy is primarily service-oriented, with 80% of its GDP coming from sectors like real estate, transportation, and financial services.

Since the USD is the most traded currency in the world, it is affected by many factors.

As already mentioned, key influences include the various reports issued by the Fed.

Other major economic indicators are:

• ISM Non-Manufacturing
• Consumer Price Index
• Producer Price Index
• ISM Manufacturing
• Trade Balance

Role Of The CAD

While you might focus your attention on the strength and role of the USD, it is equally useful to consider the role the CAD plays too.

Canada is the fourteenth biggest economy in the world.

It closely resembles the United States with its market-oriented economic system, types of production, and high standard of living.

Canada’s economy is typically known as a resource-based economy, as it mainly relies on the export of its natural resources such as wood, grain, minerals, and petroleum.

Nonetheless, more than two-thirds of its GDP comes from its service sector.

Other major economic indicators are:

• Ivey Purchasing Managers’ Index
• Consumer Price Index
• Unemployment Rate
• Trade Balance
• Retail Sales

Importantly, the 1989 Free Trade Agreement between Canada and the US removed the majority of trading tariffs between the countries.The Bank of Canada is also a major influence on the Canadian Dollar as it enacts policies that promote economic and employment growth.Daily, weekly, monthly, and annual exchange rate charts are available on the BoC website.

Final Word On Trading USD/CAD

The USD/CAD currency pair promises volume, volatility, and tight spreads, which provide plenty of opportunity to yield profits.However, there are many factors to consider, like economic data releases, central bank statements, and the latest market news.

You must be ready to conduct your own expert analysis, utilize interactive daily, weekly and historical charts, trends, and news resources.Make sure to maximize the quality of your trades in the ideal window when the pair is most liquid.You can also invest via trusted OTC brokers such as Pepperstone and Oanda.

If you follow the guidelines outlined on this page, you too can go in search of those rich forex profits.

FAQ