The usd cad currency pair is another which is referred to as a commodity dollar or com-dollar currency, and has much in common with the aud usd, with Canada’s natural resources matching those of Australia. Unlike Australia however, whose principle natural commodities are gold, aluminium and iron ore, it is oil which is Canada’s principle natural asset, and its reserves of crude oil are second only to those of Saudi Arabia, which explains why crude oil prices and the Canadian dollar are so closely inter linked. In general terms, the price of oil and the Canadian dollar have a positive correlation, with a rise in oil prices reflected in a strengthening of the Canadian dollar as a result. In addition, another currency pair which also correlated closely with crude oil is the cad jpy, which again correlates positively, and is an excellent pair for using in a hedging strategy when trading oil. The largest oil project in Canada at present is the Alberta Oil Sands project in the Northern Territories, and whilst extraction remains a complex and costly process, the recent devastating oil spill from the BP platform in the Gulf of Mexico may well provide much needed impetus for the project, which offers a safe and environmentally friendly method of extracting oil from on land, rather than several miles below the ocean surface.

The Canadian dollar is often referred to as the ‘loonie’ for the simple reason that the one dollar coin has a picture of the loon, a common Canadian bird on the reverse, and like many other economies around the world, the service sector dominates, despite the huge oil reserves, precious metals and precious stones, which add to the countries rich natural resources. Canada is a vast country, whose economy is closely inter linked with that of its nearest neighbour the USA, to whom it exports over 80% of its output, with the former supplying oil, timber and raw commodities, whilst the US exports cars, heavy plant and machinery to Canada. As such, any changes in the economic outlook, for the US, whether good or bad, will tend to have a major impact on Canada as a result, and consequently have a knock on effect on the currency.

All monetary policy for Canada is set and managed by the Bank of Canada, with the bank managing the economic against a framework of inflation targets which are set by the Department of Finance. The board of the Bank of Canada meet eight times a year to discuss the economic outlook and to set interest rates accordingly.

Forex Trading Indicators

  • Interest rates: As with many other governments around the world, interest rates have provide to be of little use in the last two years, with economies collapsing, inflation turning to deflation, and interest rates hitting all time lows, with little room for manoeuvre as a result. As such the forex markets have failed to react to the interest rate meetings as a result, since the news lacks any surprises, and indeed the associated rate statements tend to provide more clues as to future monetary policy as a result. The bank meets eight times a year and are released at 9.00 am EST.
  • GDP – is a classic lagging indicator and foremost in reporting on the health of the economy as it measures how fast or slow the economy is growing. Figures are released quarterly in Canada, but as the information is generally pre-released in production figures then the news generally has little impact on the currency.
  • CPI – Consumer Price Index, Another of the red hot indicators that is dissected by the currency and broader markets and measures the change in retail goods and services. The headline figure is presented as a % change on the previous month’s figures and also on the annual numbers. This is the prime indicator for inflation and is therefore monitored closely by the markets. As with many economies the data is presented as a core figure and a headline figure. In Canada, the core figure excludes the 8 items that are considered to be the most volatile over the previous month, in order to try to provide a more accurate assessment of core inflation. The figures are announced monthly around the 20th of each month at 8.30 am EST.
  • Trade Balance – this economic indicator indicates whether the country is exporting more than it is importing, a positive trade balance, or importing more than it is exporting which is a negative trade balance. A positive balance will translate to upward pressure on the currency as money flows out of the country, causing greater demand, whilst a negative balance will have the opposite effect. The figures are announced quarterly and approximately three months after the end of the reporting period, so they are almost 6 months out of date by release. They therefore tend to have a limited impact on market volatility.

All the above fundamental news items are covered in more detail in the economic indicators section of the site where you can find more details along with how they are likely to affect the forex markets on release.