Introduction to USD/CAD Pair
According to survey by International Bank for Settlements, the USD is the global largest reserved. It stands on one side of eighty seven percent of all Forex business transactions dating back to April of 2013. On the other side, the CAD also has its firm place amongst the top currencies traded, even though it’s not popular. It is one of the few commodity-based currencies. More on that later a little.
The CAD also regards as loonie, is 7th most famous currency. According to International Settlements bank, as it stands firmly on either side of 4.6% of all market trades Forex dating to April of 2013.
Meanwhile, USD/CAD was 5th most famous pair, representing a 3.7 percent of the total markets turns.
About U.S Economy
The U.S is the greatest economic force globally with a GDP of about $17 trn in 2013, which amounts for about 25% of worlds GDP. This is the second biggest trade country globally. The United States economy is mainly service-oriented, about 80 percent of GDP comes from industries. It includes; financial services, housing, real estate and various corporate health care.
U.S is the global’s second-largest producer of goods with about $2. 44trillion in industrial produce in 2013. This is higher or above the combined produce of Brazil, France, Germany, and India put together. Key industries includes; petroleum, automobile production, chemicals, and electronics. Others are agricultural equipments, coal, telecoms, aerospace and transportation.
The U.S is the 3rd biggest oil production country (above 8 million barrels a day, or about 9. 98 percent of the world’s entire petroleum production) and biggest producer of liquefied natural gas (66. 6 billion of cubic feet a day) dating 2013.
According to BIS, greenback or USD maintains position on either sides of 87 percent of all the trades.
About Canada's Economy
Canada is worlds 14th largest economy with GDP (PPP) estimated at $1.517 trillion as of 2013. Canada resembles U.S closely with their market-centered economy system and kinds of productions.
The economy of Canada is mainly resource based and its development is backed by mineral resource exploitation and export. Although, Canada’s recent economy is diversified, with GDP by sectors, a distinct for developed nation. CAD has a positive correlation to the raw materials been exported such as petroleum.
About 2/3 of GDP of Canada originates from her service sectors that accounts for three quarter of the countries labour force employed.
Canada benefits extensively in trade relations with the U.S.
Canada is amongst the few developed nations in the world which is a great supplier of energy. Thus, underscoring the relevance of the world’s energy for Canada’s economy and CAD value.
USD/CAD Trade Strategies
Various strategies can be employed when trading USD/CAD. In the U.S trading day, the pair becomes the most liquid, provided that the U.S and Canada have the same time zones.
Trading the big economic releases and other activities is essentially achieved. Use three general strategies–a constructive, a reactive or a mixed strategy.
Proactive trading implies taking a position ahead of data release and basing the decision on analyst estimates. The reactive strategy means joining the market after the data is released. A combined solution theoretically blends the two previous ones.
Correlation in forex tradings
Correlation is the link that exist between two different assets.
When a correlation is near the top limit between minus one and plus one, it implies that both currencies move in almost perfect consonance. It allows no diversification, and the other way round.
When a correlation is null, it simply means that the two commodities movement is unpredictable.
Volatility in forex tradings
Forex volatility means variations a currency shows when trading. In turn, these variations directly affect the measure of risk a trader is been subjected to and his returns too. Higher volatility shows that the currency may potentially perform a quick move in both direction over a minimal time period.
In otherwards, small volatility shows that exchange rate do not have the possibility for a wide variations. It moves with steady pace over a distinct time period. Small volatility carries few risk for stock traders. It is also very harder to gain a profit , especially by seasonal traders like scalpers, day traders etc.
USD/CAD Carry Trades
Carry trades are one of the most commonly applied forex trading strategies. A dealer normally sells a relatively low interest currencies to make his trade profitable.
The sole aim is to profit from the bridge in their interest rates, which could be substantial, especially when leverage is taken into account. Although the USDCAD offer some interest income presently, it not good enough for carry trades.
U.S and Canada’s benchmark interest rates is not really divergent. It have already concluded the quantitative easing plan. It is widely expected to maximize interest rates in 2015, the U.S Federal Reserve has acted to stiff money supply. The USD is on the rise, including the CAD, against its major trading likes.However, CAD is expected to experience major pressure from projected lower oil prices in the coming years.
Organisations and Economic data which influences USD/CAD
In Canada, the institutions and individuals most impacted by the pair’s activities are: Cental bank of Canada and BoC or Bank of Canada. They issues statements and decides on the Canada’s interest rates.
Canadian government and its treasury department enforcing policies that impact the country’s economy. C.A.P.P (Canadian Association of Petroleum Producers): Canada is a leading producer of petroleum and natural gas. The industry’s trade association is very important.
In the U.S, we have: the United States government. They increase or decrease the value of the USD and currencies exchanged against it.
During periods of bank insolvencies or financial crises, the Fed manages monetary policy. This is through aggressive duties such as controlling interest rates, and serving as a lender of last resort to the banking industry.
The Trade Account Balance should be highlighted in terms of economic data. That is, a balance between exports and imports of total goods and services.A positive value indicates a surplus in revenue, while a negative value reveals a imbalance in trade. It is an event that generates some USDCAD volatility.
If a steady demand for CAD exports is seen, that would turn into a positive trade balance growth, and that should be positive for the Canadian dollar. Inflation is another important economic benefit for this pair. The C.P.I (Core Price Index) and the P.P.I (Production Price Index) calculate it among others. Those are key metrics for assessing inflation and buying patterns shifts.
Importance of Petroleum for CAD
The USDCAD, along with the following, is one of the three so-called “commodity pairs”: AUDUSD, NZDUSD. These pairs are highly correlated to changes in commodities (especially petroleum). Canada is widely regarded as a major producer and retailer of petroleum is a resource-based economy. Canada’s largest export market is by far that of the U.S, making CAD vulnerable to data on demand and economic health in the U.S.
You have two good similarities here. When you’re able to choose a pair that’s very oil price prone, then take the CADJPY. Canada and Japan find themselves at the very end of petroleum production and consumption. Although Canada gains from higher petroleum prices, Japan’s economy can suffer as almost all the petroleum it uses is imported. This is another very interesting follow-up correlation. .
Best time to trade USDCAD
The perfect time for trading USD/CAD is between 8 O’clock and 5 O’clock U.S time, which is always usual trading hours in the U.S.
That implies that markets in New York City and Toronto are up for trading eight hours and volume of trade has peaked within that period.
If you desire to make profits, you must understand the immediate market conditions with the fundamentals of the USD.
Assets which influences USD/CAD heavily
As already explained, petroleum is number one, but the traders must also take into account natural gas and gold.
JPY and dollars. Some major classes of important pairs includes: EURUSD, GBPUSD, USDJPY, AUDUSD, NZDUSD, USDCHF.
(Savings Securities of Canada) CBS, CPB (Premium Bond of Canada).
If you have only one pair to pick, then pick EURUSD. This is undoubtedly, the most traded pair globally, they have light spreads, and a much more predictable movement.
Guidance provided by U.S federal reserves and ECB is outstanding (and this is one of the many reasons it is such a commonly traded pair indirectly), and the overall course of EUR and USD is linear and clear.
It is again strongly traded in North America and Europe during their sessions. It is good to focus in one or more currencies to gain a strong understanding of the trade and make money if a pair moves up or down.
USDJPY is also a very good currency pair to trade as a starter too. It has a predictable movement with low spreads since it is heavily traded in both Asian sessions and North American sessions.
It is very good to shorten the pair when you purchase yen as a safer haven especially during times of economic and political uncertainties. (USDJPY pair moves down while yen moves up.
(USD/CAD) is a cool deal also, even though its strongly traded in one session which is North America. it has a strong spreads and a predictable movement.
NZDUSD is very profitable too, but as it works predictably and moves gradually, others prefer it.