USDCAD is a popular pair with major European and Middle Eastern traders. As an advanced commodity trading nation with a mostly healthy balance sheet, Canada forms an interesting contrast to the consumption-oriented, deficit-laden U.S. economy.
In this page we present a live USDCAD flash chart, followed by a discussion of the backgrounds of the U.S. and Canada dollars, as well as some useful tips on currency strategies as they relate to the pair.
The US Dollar
The American Dollar, often abbreviated as the dollar, or USD, is the most important currency in the world. The vast majority of global transactions in finance, international trade, and tourism depend on the value and credibility of the dollar to establish confidence between partners. As the currency of the world’s largest economy with a GDP of about $17 trillion, the dollar is guaranteed by the full weight of goods and services produced in the United States.
Introduced in 1792, the U.S. dollar circulated along side the Spanish dollar, and the Pound Sterling as legal tender until 1857, when it acquired its present status as the only valid medium of commerce and trade in the United States. The United States maintained a gold standard for the longest part of its economic history, but as growing financial integration in the world granted speculators the power to react faster to imbalances than authorities could, the gold standard collapsed and the era of fiat-money in the United States.
Today the dollar remains by far the dominant reserve currency of the world, with more than 2/3 of global forex reserves denominated in USD.
The Canadian Dollar
Before 1858, Canada followed the British system and issued the Canada Pound, although a majority of Canadians favored the dollar system due to the close economic relations enjoyed with the United States. The authorities in London resisted these demands until 1858, when Canada finally decided to adopt the Canada dollar as its national currency.
In the post-war period until the 70s, Canada fluctuated between a fixed and floating regime depending on the economic conditions of the time. The currency was finally floated in 1970 as part of the general collapse of worldwide pegs initiated by imbalances and speculator attacks. Today the currency’s value is determined by the free market, with Royal Bank of Canada only indirectly influencing currency prices through the interest rate and credit channels of monetary policy.
Petrodollars and exporter revenue tended to be recycled to the Canada dollar by Middle Eastern and Asian nations as a routine process of the forex market during the heyday of the carry trade between 2003-2007. Today the USDCAD pair is still popular, but the decreasing rate differential, and the tenser risk atmosphere have curtailed the enthusiasm of traders for the pair a little.
Trading the USDCAD pair
The Canadian and the American economies are strongly integrated with each other, although, naturally, the significance of the U.S. to Canada is much greater than the other way around, due to the great size discrepancy. Since Canada benefits greatly from exporting goods and raw materials to the U.S. it is in general not unreasonable to assume that any severe imbalance in the exchange rate is unlikely to be desirable to Canadian authorities over the long term, while the U.S. can afford to be indifferent to the currency rate (which is often the case.)
Canada is rich in natural resources. The nation is a major exporter of oil, as well as forestry products to the U.S.. As a result, commodity market trends are often as significant as interest rate trends in the determining trends for the USDCAD pair. Indeed, the Royal Bank of Canada always considers the commodity price trends in predicting future inflation trends, so a robust commodity market environment will usually imply higher interest rates in Canada. In accoradance, traders will choose to buy the CAD and sell the U.S. dollar when the global economy is dynamic and healthy, with rising commodity prices establishing the background, when the opposite scenario prevails, the Canada dollar will suffer.
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