How to Trade USD/CAD
USDCAD is also known as the loonie currency pair in North America, which is the name for the Canadian Dollar.
USDCAD Trading in Binary Options
If you should trade this currency pair, you should know that the Canadian economy as a whole depends heavily on commodity markets, more precisely on the oil market. Canada is known as a big oil producer on a global level, and anything that happens on the oil market directly reflects on the Canadian economy, and subsequently on the USDCAD currency pair.
As we said the USDCAD moves and fluctuates in the market when oil prices change, but the USDCAD also indicates the differences between the two economies which are only divided by the US-Canadian border.
If you should engage in trading the USDCAD, the following should be taken into consideration:
- The first task is to look for the date of release of oil inventories in the economic calendar. This can be useful to traders since they get valuable hints on what direction is the Canadian economy going to take in the following period. Higher inventories indicate a drop in oil prices, which automatically means that the USDCAD will also turn lower. This will send the currency pair to the upside and traders should place call options. Put options are to be placed when the opposite happens.
- Since the Canadian economy mostly revolves around oil, OPEC meetings should also be followed since they always account for significant movements in the oil market, and subsequently, in the USDCAD pair.
- Interest rate changes and decisions taken by central banks. The Federal Reserve meets on a 6-week basis and is only open to the press when interest rates are concerned. The Central Bank of Canada meets every 30 days and is open to the press.
What News to Follow in Canada?
Every USDCAD trader should stick to releases connected to the oil industry, i.e. OPEC production levels and meetings, US oil rig count, inventories levels, and others. Make sure to know when these data are released and be prepared to see the USDCAD move actively during these periods.
Unlike Europe, USA, and Australia, which all have, at least, two Indices, Canada has only one Ivey PMI, and the release of this Index is basically a mirror of the Canadian economy, which means that it deserves your full attention as trader in USDCAD. It shows whether the economy has been growing, shrinking, whether the country goes through recession or prosperity, etc.
Other news releases that can help your trading cause are GDP release, Retail Sales, Manufacturing statistics, etc. Still, the USDCAD’s value is mostly defined by the interest rate status and oil prices, all other information in Canada are secondary.
Since the meetings of the Bank of Canada are public, expect the USDCAD to show high volatility during the press conferences.
What News to Follow in the USA?
A series of important economic data is being released in the USA, since the biggest economy in the world has a lot to share with its citizens and the world.
As a trader, your primary focus should be on US Federal Reserve meetings and news releases like non-farm payrolls and the CPI which indicates inflation. Besides these two, there are some other releases which can give you certain hints what to expect in the market and they are Retail Sales, Institute for Supply Management (ISM), Manufacturing and Non-manufacturing, and of course the PPI and GDP, as well as private payrolls, and other similar releases.
The Purpose of Following Releases
All central bank meetings will trigger the USDCAD to move sharply and you can expect high levels of volatility when for example, the press conference on the meeting of the Bank of Canada is taking place.
Be careful when it comes to the press conference statements since it sometimes happens that events, e.g. interest rate decisions, are downplayed and your job is to watch if the conference comments are in line with the actual statistics that has been released.
The USDCAD is not one of the liquid currency pairs but tends to be at a lower level, which means that every trading decision should be carried out with minimum mistakes since one cannot afford to lose on a low-liquid currency pair. The low levels of USDCAD liquidity indicate sharp and strong trend movements in the market and you should use it to your benefit as a binary options trader.
The Federal Open Market Committee of the US Federal Reserve Bank holds meetings every 6 weeks (as opposed to the majority of countries which meet every month) and not all of them are open to the public. You can follow the press conferences on these meetings every 2 to 3 meetings. These meetings result in the release of economic projections which dictate the course of prices to a big extent.
As all central banks meetings, the Federal Reserve’s meetings are also causing a lot of turbulent movements in the market, whereby the USD is moving sharply during and after the meetings and also influences all other USD-related currencies to move as well.
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References and Further Reading:
- A multiscale modeling approach incorporating ARIMA and anns for financial market volatility forecasting (Yi XiaoJin XiaoJohn LiuShouyang Wang)
- Application of spectral methods for high-frequency financial data to quantifying states of market participants (Aki-Hiro Sato)
- Detecting a currency’s dominance or dependence using foreign exchange network trees (Mark McDonald, Omer Suleman, Stacy Williams, Sam Howison, and Neil F. Johnson)
- The Dynamic Interaction of Order Flows and the CAD/USD Exchange Rate (Nikola Gradojevic, Christopher J. Neely )
- Volatility Transmission Between Foreign Exchange and Money Markets (Shafiq K. Ebrahim)