What to Consider When Trading the Canadian Dollar

Hello there, this is tradingpedia.com and this video deals with the Canadian dollar – what to consider when trading the Canadian dollar, a currency like no other on the FX dashboard. It reflects the economic evolution of one of the most developed economies in the world.

Canadian Oil Industry

If this is the world, this is the Canadian dollar, right. Whenever you think of the Canadian dollar, the first thing that comes to mind is oil. Canada is a resource rich country, an energy intensive country, it exports plenty of oil and employs a lot of people both upstream and downstream. The price of oil, therefore, affects the Canadian GDP aggressively.

Imagine that the price of oil, for instance, that trades now around $40, jumps to $100. If the price of oil rises like this, the Canadian dollar will appreciate, and the USDCAD exchange rate will decrease. The implications are that more people will be employed in the sector, more income or revenue stream from the oil products will flow to Canada, and therefore it is a positive for everyone.

This is where the oil price collapsed from $100 to $30 in 2016 and the USDCAD was the first one to reflect that. When it comes to the oil price, look at OPEC meetings and oil inventories in the United States.

Canada exports plenty of oil to the United States – after all, the two countries share a common border. The USDCAD exchange rate, therefore, is very important for the Canadian oil industry.

Think of the oil price every time you trade the Canadian dollar. Also, thing of the U.S. oil inventories. This is a weekly release, and it matters for the Canadian dollar because if the inventories are on the rise, it means that there is not a strong demand for oil from the largest economy in the world, the United States economy, and therefore the imports from Canada will drop. This is negative for the Canadian dollar, and the bigger the difference in the inventory levels, the bigger the CAD’s reaction.

Canadian Economic Data

In terms of Canadian economic data, consider one of the most relevant economic release. This is a PMI and, unlike like other developed countries, Canada calculates the PMI for all the economy. In the United States, for example, there is the ISM Manufacturing and Non-Manufacturing, in Australia you have the PMI Manufacturing, Services and Construction, and so it is in the United Kingdom too.

But in Canada there is only one release that covers all the sectors and the PMI is interpreted in relation to the 50 level. If the PMI comes bigger than the 50 level, it means that the Canadian economy is expanding. If not, it is contracting. That is a relevant benchmark for economic growth in Canada.

Canadian Jobs Data

And then there is the all-important jobs data, or unemployment data. Why it is important? Most of the time throughout the year it comes out at the same time with the NFP in the United States, making it very difficult to trade the USDCAD pair.

The NFP comes out every first Friday of the month. At the same time, the Canadian jobs data is released. If the U.S. data beats expectations, you will have a higher USD. But if the Canadian data beats expectations as well, you will have a higher CAD as well. So, one data is positive for the USD and the other set of data is positive for the CAD. Therefore, what will the USDCAD do?

Between the two, always look at the NFP for direction because the USD is the world’s reserve currency and it matters the most in the world’s financial system. Also, look at revisions, from both the United States and Canada. The jobs data is one of the most difficult to interpret and it moves the CAD aggressively.

Bank of Canada

Last but not least, there is Bank of Canada. This is one of the most proactive central banks in the world. It is not uncommon for the Bank of Canada to deliver surprises. Last year or the year ahead it delivered a 50 basis points rate hike or cut, on expectations of only 25 basis points. So, it took markets by surprise and created wild volatility. Therefore, Bank of Canada is a wild card when trading the Canadian dollar, so watch for press conferences, and so on.

Another tip is that the Bank of Canada follows on the Fed’s footsteps. If the Fed in the United States is on a tightening cycle, the business cycle in Canada follows the one in the United States and the Bank of Canada is forced to follow the Fed’s monetary policy.


Finally, think of liquidity. The Canadian dollar is one of the most illiquid currencies. If you look at the FX dashboard, for example, the AUDCAD. On this broker has a spread of almost two pip points – but at midnight, when the broker rolls over the position, you will see that the spread increases dramatically, especially if the account is ECN (Electronic Communication Network) or STP (Straight-Through Processing).

In this case, the broker will show the market, and during the rollover, the spread will be so wide that it will often exceed ten pips on the CAD. You won’t see that kind of spread on the EURUSD, for instance, but you will see it on the USDCAD pair. So if you are forced to trade the Canadian dollar during illiquid times, you will have a hard time trading a bigger volume and will have to pay a price in terms of slippage and bigger spreads.

Thank you for being here and have a great day. Bye,bye.