What is the USD/CAD currency pair?

The conversion rate between the U.S. and Canadian currencies is shown as USD/CAD. The USD/CAD exchange rate shows how many Canadian dollars are needed to buy one US dollar.

Trading the USD/CAD currency pair is frequently known as changing the “loonie,” after the Canadian dollar coin that features a loon bird. It is also known as one of the most liquid and active trading pairs on the foreign currency market,.

As one of the most frequently traded currency pairs on the foreign exchange market, the USD/CAD pair occupies a significant place. This currency pair attracts interest from a wide spectrum of market participants since it is well-liked by both seasoned traders and those who are new to the forex market.

USD/CAD history

The history of the USD/CAD currency pair spans several centuries. The US dollar, which was created by the US Congress in 1792, is a widely used and recognised currency that is coupled with other significant currencies across the world. It is recognised as the world’s unofficial reserve currency and is accepted as legal money in many nations.

Canada started the process of switching from the colonial pound to the decimalised Canadian dollar in the early 1850s. The Canadian dollar used to be tied to the US dollar, but in 1970 the Bank of Canada took control of it and made it a free-floating currency. This reform made it possible for the Canadian dollar to alter in value on the foreign exchange market on its own.

How the USD/CAD works

The USD/CAD pair, which represents the exchange rate between the two currencies, is stated as 1 USD for X CAD. If the price of the pair is 1.20, for instance, it indicates that 1.2 Canadian dollars are required to buy 1 US dollar, or alternatively that 1 CAD is equal to $0.833 USD.
Although the USD/CAD currency pair has occasionally approached parity (1:1) throughout history, the U.S. dollar has typically been seen as being more powerful than the Canadian dollar.

The USD/CAD currency pair is regularly traded due to the strong economic linkages between the two countries, reflecting the extensive business partnership between the United States and Canada.

What affects the USD/CAD pair

The strength of the U.S. dollar and the Canadian dollar in relation to other currencies and each other are two variables that affect the value of the USD/CAD currency pair. The difference in interest rates between the Federal Reserve (Fed) and the Bank of Canada (BoC), which can influence how much these currencies are worth in comparison to one another, is one important reason. The USD/CAD cross rate will rise when the Fed uses open market operations to strengthen the U.S. currency since it takes more Canadian dollars to buy the stronger U.S. dollar.

In addition, the Canadian dollar’s value is highly correlated with the cost of commodities, notably crude oil. Given how heavily the Canadian economy depends on oil, the price of oil has a significant impact on both the health of the economy as a whole and the value of the currency. The Canadian dollar has a reputation for being a commodity currency as a result of the country’s link to commodities.

USD

Since the US dollar is the most frequently used currency worldwide, a number of variables can affect its value. The reports released by the US Federal Reserve Bank (Fed), which were already mentioned, are among these important elements. These reports offer traders useful information to forecast upcoming market changes. This information is essential for assisting traders in understanding how the market could change. Additionally, the USD/CAD currency pair may see volatility due to the release of Non-Farm Payroll data by the Bureau of Labor Statistics, which normally occurs on the first Friday of every month.

Like other currencies, the USD’s exchange rate is subject to changes brought on by a variety of factors, including political, economic, and sporadic crises. To keep up to speed on issues that may affect the markets, it is crucial to stay educated about news and statistics pertaining to the US economy and politics.

The following are the main influences on the USD:

• Interest rates set by the Federal Reserve (Fed)
• Gross Domestic Product (GDP) growth rates
• Unemployment rates
• The availability of money and the Federal Reserve’s operations, such as money printing
• International trade agreements, taxes, and charges that impact the flow of products and services
• The balance of payments, which consists of capital movements, imports, and exports
• The nation’s overall national debt and budget deficit
• Important political developments that have an influence on the economy
• Governmental entitlement systems like Medicare and Social Security.
• Consumer savings and family income rates

CAD

The Bank of Canada has a substantial impact on the value of the Canadian dollar (CAD). Although there haven’t been any direct currency interventions since 1998, the bank still implements policies to promote economic and employment growth.

Canada benefits from its closeness to the US as a significant supplier of materials and goods including wood, grain, minerals, and petroleum. The Canadian import/export sector is strengthened by this closeness, which also supports the country’s currency’s strong position on the international exchange market.

The following are the variables influencing CAD:

• Changes in the price of commodities including oil, potash, and other essential commodities
• Bank of Canada’s (BoC) interest rates
• The nation’s employment rate and pace of job creation
• The government’s budget deficit and overall national debt levels
• Political Variables and global economic policies that Affect Canada
• How good relations between Canada and the United States are

How to trade the USD/CAD pair

An individual has the option to engage in USD to CAD trading through a contract for difference (CFD) on a specific currency pair, allowing them to speculate on price fluctuations.

A CFD is a financial tool that involves an agreement between a broker and an investor. In this agreement, one party agrees to pay the other the difference in the value of security between the beginning and end of the trade. Traders can take a long position, anticipating that the price will increase, or a short position, speculating that the price will decrease. CFD trading is typically regarded as a short-term investment or trade, as it is commonly employed within a limited timeframe.

You speculate about the underlying asset’s movement, for instance, when you trade the USD/CAD currency pair using CFDs. You can take a long position by acquiring CFDs if you believe the value of the US dollar will rise. On the other hand, you might take a short position by selling CFDs if you think that the US dollar will lose value in comparison to the Canadian currency.

Disclaimer:

This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.