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BULLISH PERCENTAGE INDEX
USD/CAD, THE “LOONIE”
The USD/CAD pair tells the trader how many Canadian dollars (the quote currency) are needed to purchase one U.S. dollar (the base currency). This currency pair is also known as the "Loonie", a nickname derived from the picture of a loon, a distinctive bird which appears on one side of the Canada's gold-colored, one Dollar coin.
HISTORIC HIGHS AND LOWS FOR USD/CAD
- All-time records: Max: 1.6184 on 21/01/2001 - Min: 0.90059 on 05/11/2007
- Last 12 months (March 2016-March 2017): Max: 1.4689 on 18/01/2016 - Min: 1.24610 on 2/05/2016
- Last 5 years (March 2011-March 2016): Max: 1.4689 on 18/01/2016 - Min: 0.9635 on 10/09/2012
THE IMPORTANCE OF OIL FOR THE LOONIE
The USD/CAD is one of the three so-called “commodity pairs”, together with AUD/USD, NZD/USD. These pairs are highly correlated to commodity (especially oil) fluctuations.
Canada is commonly known as a resource based economy being a large producer and supplier of oil. The leading export market for Canada is by far the United States making its currency particularly sensitive to US consumption data and economical health.
Gonçalo Moreira explains the correlations that exist between oil, the USD and the CAD: "If Canada is one of the world's largest producers of oil and oil is such a big part of the US economy, rising oil prices tend to have a negative effect on the USD and a positive effect on the CAD. Here you have two nice correlations.” Then he continues his analysis: “If you are willing to find a pair which is really sensitive to oil prices, then pick the CAD/JPY. Canada and Japan are at the extreme ends of production and consumption of oil. While Canada benefits from higher oil prices, Japan's economy can suffer because it imports nearly all of the oil it consumes. This is another interesting correlation to follow."
FORECAST FOR 2019
In our annual forecast, our surveyed contributors expect the USD/CAD to reach the price of 1,3800 by the end of the year 2019.
The Canadian Dollar suffered during a choppy 2018 that was dominated by trade talks and oil prices more than domestic economic indicators.
Trade talks are not over, nor the growing impact of oil and 2019 may see these feature in a different form, at least early in the year, before Canada's general elections take over the scene.
The BOC may raise rates twice in 2019. As we have already seen in the US, the markets may become more sensitive to wages.
Salaries for full-time workers dropped in the past six months, and if the trend extends into 2019, the BOC may refrain from raising the rates.
However, the overall economy is doing quite well, and wages are likely to turn around.
ORGANIZATIONS, PEOPLE AND ECONOMIC DATA THAT INFLUENCE USD/CAD
In Canada, the organizations and people that affect the most the moves of the USD/CAD pair are:
- Bank of Canada (BoC, Canada’s Central bank) that issues statements and decides on the interest rates of the country. Its president is Stephen Poloz.
- Canadian Government (headed by Justin Trudeau) and its Department of Finance (whose minister is Bill Morneau) that implement policies that affect the economy of the country.
- CAPP (Canadian Association of Petroleum Producers): Canada being a prominent oil and natural gas producer, the trade organization of that industry is very important.
In the USA, we have:
- The US Government (and its President Donald Trump): events as administration statements, new laws and regulations or fiscal policy can increase or decrease the value of the US Dollar and the currencies traded against it, in this case the Canadian Dollar.
- Fed, the Federal Reserve of the United States whose president is Janet Yellen. The Fed controls the monetary policy, through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis.
In terms of economic data, we should highlight the Trade Account Balance, a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the USD/CAD. If a steady demand in exchange for CAD exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the CAD.
Inflation is another economic value that is important for the USD/CAD pair. It is measured among others by the CPI (Core Price Index) and the PPI (Production Price Index). They are key indicators to measure inflation and changes in purchasing trends.
ASSETS THAT INFLUENCE USD/CAD THE MOST
- Commodities: as we already explained, oil is number one, but gold and natural gas are also to be taken into account by the USD/CAD traders.
- Currencies: JPY and EUR. This group also includes the following currency pairs: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD, GBP/JPY and EUR/JPY
- Bonds: CSB (Canada Savings Bonds), CPB (Canada Premium Bond).
- Indices: S&P/TSX Capped Composite Index (the headline index for the Canadian equity market), S&P/TSX Global Gold Index (index of global gold securities) and S&P/TSX Capped Energy Index (benchmarks for related derivative products of Canadian economic sectors).