Understanding the two economies
When one is first introduced to the world of trading and the financial markets, there are a few notable currencies that never go unmentioned. Amongst those currencies are the Canadian Dollar (CAD) and the American currency, the US Dollar (USD). Of course, this speaks volumes on the role that these two economies play in global trade and activity, more so when they are coupled together as one of the most traded currency couples in the world. However, the US and Canada have relatively different economic structures, as the latter has more liberal policies and more lax immigration policies, while the former’s economy is characterised by immigrants entering its workforce and a higher level of trading activity. Despite this, certain economic triggers can prove to be quite lucrative for USD/CAD traders because of the trade relationship between the two and the fluctuations in either one of the currencies that encourages leveraging.
Why this currency couple is so appealing
The currency pair comprising American Dollars and Canadian Dollars on the forex market is also known as the “loonie”, which is reference to the loon bird that appears on the Canadian Dollar coins. In 2019, this pairing reportedly accounted for up to 4.4% of daily forex trades, which is proof of just how actively traded it is given that the financial markets consist of various currency pairs.
So what is the strength of the CAD attributed to? Oil. Oil is Canada’s main export and because oil is priced in USD, the USD generally weakens against the CAD whenever the price of oil increases. Therefore, with oil being such a fundamental global commodity, the CAD is often perceived as a relatively stable and secure currency. Moreover, those trading this currency pair need to keep a close eye on the price of Brent Crude Oil and US Crude Oil as the fluctuations will invariably be reflected in the exchange rate of the USD/CAD pair.
On the other hand, one of the major impacts on the strength of the USD currently is the tech industry, which also extends to gaming, as the US has a strong presence in the sector, especially compared to Canada which is not as active in that space. As such, any upward or downward trends in the industry will have an influence on the strength of the USD and ultimately, the pair. Given that the tech industry is currently said to be on an upward trajectory that is expected to continue into the foreseeable future, the USD remains appealing to traders.
The individual strengths of each of these currencies has also proven quite useful in sparing traders against certain potentially major losses. One such example of this that can be referenced is the housing market collapse that the US suffered in the 2000s, sparked by certain policies that were implemented in the industry, and the subsequent recession. Understanding that the USD acts as a reserve currency and is involved in the majority of global trading activities and transactions, this had a ripple effect on many countries and their economies. Fortunately, the CAD was amongst the currencies that were not too adversely impacted, due to certain policies and limitations in the country. Therefore, some USD/CAD traders leveraged the pair by taking advantage of Canada being on a stronger and more stable economic footing, which spared them of significant losses.
