CAD

The Canadian dollar (CAD) is the official currency of Canada and at the time of writing is the fifth most-held reserve currency in the world behind only the US dollar, euro, Japanese yen, and British pound.

The CAD is commonly referred to as the Loonie by forex analysts and traders. At the time of writing, the CAD accounts for 2% of all global currency reserves.

Its appeal is strong among central banking authorities given Canada’s economic strength, sovereignty, and historic stability.

Originally introduced in 1858, the CAD has since its inception maintained a strong tie to the US dollar.

This is due to the high degree of trade between the two countries, with the United States receiving the vast majority of Canadian exports, with Canada in turn importing over half of its goods from its southern neighbor.

For brief periods of time the CAD has been fixed to the US dollar over its history. Presently, the Bank of Canada (BoC) is responsible for intervening to maintain the value of the currency.

What Factors Affect the CAD?

Forex traders tune into a variety of factors and metrics when trading the CAD. The value of the CAD is strongly correlated to the strength of global commodity prices such as oil.

As a producer and exporter of oil and other commodities, Canada benefits from stronger crude oil prices. When commodity prices rise, Canada’s terms of trade also generally improve, and vice versa.

Furthermore, a number of domestic factors can also influence the CAD. This includes interest rates set by the BoC, domestic inflation rates, trade surpluses, and foreign investment & direct payments.