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Canada’s currency trading is widespread on the forex market due to its image as a growth-tied currency. The Canadian dollar, popularly called the Loonie, generally moves in the direction of the market. Therefore, when the economy is bearish, an investment in the loonie could yield high returns. Canadian currency trading largely occurs against the US dollar, although it is also commonly paired versus the euro and the Australian dollar.
Canada Currency Trading: A Short History
Trading in the Canadian dollar was first initiated after the abolishment of the loonie’s peg to the US dollar in 1950. Until this time, the Canadian dollar was pegged at a fixed rate of 90.91 US cents. Following the discontinuation of the fixed rate system, the Canadian dollar traded at a premium against its US counterpart for almost a decade, and managed to reach US$1.06 in 1957. The loonie was, however, re-pegged to the Greenback in 1962, only to be floated again in 1970 over inflationary concerns.
Canada Currency Trading: Analyzing the Key Indicators
The most crucial factor to bear in mind, while trading the Canadian dollar, is to evaluate the economic conditions in the US. This is because Canada shares a close trade relationship with the US, and therefore any factor impacting the US economy affects the movement of the Canadian currency.
To succeed in Canada currency trading, also pay heed to the following factors:
- Crude prices: Oil accounts for as much as 50% of Canada’s exports. Consequently, declining oil prices are bound to have an adverse impact on the loonie, while appreciating crude is likely to boost the currency.
- Sovereign credit rating: This highlights the overall growth and stability of the global markets. A poor rating is likely to restrict availability of the Canadian dollar in the global capital markets, thus impacting its rate.
Finally, review the Bank of Canada’s statements and announcements diligently to gain on Canada currency trading. The central bank directly impacts the loonie’s value by altering the currency’s availability in the market, to keep inflation in check.