Abstract：Canada, second largest country in the world in area but after Russia, occupying roughly the northern two-fifths of the continent of North America.
Canada, second largest country in the world in area but after Russia, occupying roughly the northern two-fifths of the continent of North America. It is a place known to have created some of the most amazing things in the world, like game of basketball, baseball, maple syrup, and Smarties.
Canada, whose topographical regions takes up most of North America, extends from the Atlantic Ocean all the way to the east to the Pacific Ocean. It comprise of ten provinces and three regions and is considered one of the worlds most developed countries. In terms of mainland, It is numero dos in the world right after Russia!. Canada occupies most of the northern part of North America. The country is bounded by the North Atlantic Ocean on the east, the North Pacific Ocean on the west.
Canada is one of the world's leading economies, driven largely by wonderful and high wealth of Canada with it's natural resources. Despite having little over a tent, while looking at it's contributions to the world, you can just imagine how Canada and its domestic currency, the Canadian dollar, are important to forex trading.
Canada: Facts and Figures
Neighbors: United States of America
Size: 3,854,085 square miles
Density: 8.3 people per square mile
Capital City: Ottawa
Head of State: Queen Elizabeth II, represented by Governor General Julie Payette
Prime Minister: Justin Trudeau
Currency: Canadian dollar (CAD)
Main Imports: machinery and equipment, motor vehicles and parts, electronics, plus crude oil, chemicals, electricity, durable consumer goods
Main Exports: Justin Bieber, motor vehicles and parts, industrial machinery, aircraft, telecommunications equipment, electronics, chemicals, plastics, fertilizers, wood pulp, timber, crude petroleum, natural gas, electricity, aluminum, Steve Nash, Sidney Crosby
Imports Partners: U.S. 50.6%, China 11%, Mexico 5.5%
Exports Partners: U.S. 74.5%, China 4.3%, UK 4.1%
Time Zones: GMT -8, GMT -7, GMT -6, GMT -5, GMT -4
Canada has the ninth-largest economy in the world as of 2020, with a GDP of $1.64 trillion in USD. · International trade, including both exports and imports. Canada is considered a resource-based country, which basically means that most of the economic growth it experienced early on came from the maintaining and export of its own natural resources.
Based on the report release by IMF, Canada‘s economy is the tenth-largest in the world, making it part of the world’s G8. It was rated the seventh biggest producer of gold and the fourth-largest producer of black crack (oil). Despite its robust industrial and manufacturing industry, much of Canadas GDP is mostly coming from its service sector.
Canada enlarges its services sector employs three out of every four working Canadians and involved for about 70% of the country‘s GDP. Next time you meet a Canadian, go ahead and make a bet with him that he works in the services industry. More often than not, you’ll win!
The economy of Canada really raised in January of 1989, when the Free Trade Agreement came into effect. The agreement basically removed all the tariffs (that is the tax imposed on trade) between the US and Canada. In effect, Canada now exports over 70% of its goods to the US.
Monetary & Fiscal Policy
The Bank of Canada (BOC) is the main governing body when it comes to determining the country‘s financial policy. Decisions on the financial policy are made by the Governing Council, which is made up of the bank’s governor, the senior deputy, and four other deputy governors.
In contrast to most other central banks, the BOC doesn‘t have a set time to make changes to its policies. The council meets every single working day and can alter financial policy to their liking at any time. The main mandate of the bank is similar to other central banks in that they aim to make sure that the Canadian dollar’s value is stable and that the countrys inflation ratio is within their 1-3% target. The BOC does this through open market operations and persistent moderation of the bank rate.
The BOC implements its open market operations by using a procedure called the Large Value Transfer System (LVTS). The LVTS allows commercial banks all over Canada to borrow and lend money to each other so that they could go about their daily operations.
Now, the interest rate being charged on these transactions is called the bank rate. By altering the bank rate, the BOC can basically control the flow of money in the economy.
To highlight this, lets say the bank rate is set at 2.00%.
In one of its meetings, the BOC identifies that the CAD is losing value much faster than expected, which is causing businesses to increase the prices of goods they sell and the services they provide. The BOC then decides to raise the bank rate to 2.50%. By hiking the bank rate, the interest expected to be paid to lenders increases, in turn, reduces the likelihood of banks, businesses, and consumers taking additional debt.
But, since there is insufficient money in the pockets of consumers, the of their spending is decreased, avoiding all incoming fortune inflation. What business in their right mind would increase prices when no one is buying, right？
Getting to Know the CAD
CAD, nicknamed the “loonie,” is the currency abbreviation or currency symbol used to denote the Canadian Dollar. It was named after Canada‘s national bird, the Loonie… Well, that’s because that‘s the engraved design on Canada’s coins! Check out these other cool properties of the Loonie:
The Black Crack and Me
According to the history, the price of black crack has been highly correlated with the USD/CAD. The common rule is that whenever oil prices start climbing, the CAD usually follows. If the price of oil is projected to increase over the next set of years, then youd want to go sell the USD/CAD!
My work hours are short
The USD/CAD has been known to move in limited ranges for the most part of the day. It is only when U.S. traders are eating their Cheerios during the overlap of the European trading session and the US trading session that the pair begins to move.
unlike my BFF, the USD
An important aspect to look at when trading the USD/CAD is that its direction is closely tied to the U.S. economy. Recall, more than being close neighbors, the U.S. and Canada engage in heavy trade with each other. As the U.S. economy experiences robust growth, the Canadian economy is usually just right behind it! So whenever you decide to trade the CAD, take some time off to see how great (or poorly) the U.S. is doing.
but Im still feisty during the US session.
The CAD usually doesnt start moving until the U.S. trading session, around 1:00 pm GMT. The CAD provides little movement during the Asian trading session and the morning European trading session.
Important Economic Indicators for the CAD
Consumer Price Index (CPI) – Similar to other central banks, the aim of Bank of Canada is to make sure that inflation does not get out of hand. Since the consumer price index tracks the increase (or decrease) in the prices of consumer goods and services, the report is closely watched by currency traders.
Gross Domestic Product (GDP) – The GDP is the largest estimate of Canadas economic projects. It shows out either the country is growing or not.
Trade Balance – Just like other commodity-based countries, Canadas economy is highly susceptible to changes in its export and import projects.
Ivey Purchasing Managers Index (PMI) – The PMI is a survey designed to see either the businesses are optimistic or pessimistic about the economy. A reading above baseline 50.0 means that conditions in the business sector are growing while a reading below 50.0 indicates otherwise.
What Moves the CAD？
U.S. Economic Data
U.S. economic data usually prints roughly at the same time as Canadian data. Moreover, the negative data from the US coupled with positive data from Canada could lead to a massive drop in the USD/CADs value. Also, positive U.S. data and poor Canadian data could send the USD/CAD soaring high!
Mergers and Acquisitions
As a result of the proximity between the U.S. and Canada, company mergers and acquisitions happen quite often. These cause a large amount of money to flow between the two countries, which creates a notable effect on the foreign exchange market.
For example, in order for a U.S. company to buy out a Canadian company, it must first exchange its U.S. dollars for Canadian dollars to complete the transaction. Imagine the amount of money that flows through the foreign exch. market just to seal the deal!
Trading the USD/CAD
USD/CAD is traded in amounts denominated in USD. Standard lot sizes are 100,000 USD and mini lot sizes are 10,000 USD.
The pip value, which is denominated in Canadian dollars, is calculated by dividing 1 pip of USD/CAD (that‘s 0.0001) by USD/CAD’s current rate.
Profit and loss are denominated in Canadian dollars.
For one std.lot position size, each pip movement is worth 10 CAD.
For one mini lot position size, each pip movement is worth 1 CAD.
For example, if the present exchange rate of USD/CAD is 1.1000 and you want to trade one std. lot, then one pip would equate to 9.90 USD.
Margin calculations are based on US dollars. With leverage of 100:1, 1,000 USD is expected to trade 100,000 USD/CAD.
USD/CAD Trading Tactics
Because the USD/CAD is only active during the U.S. trading session, the pair is highly susceptible to fake outs during the other two trading sessions. And this means that a break in a notable support level in the USD/CAD during the morning European trading session would, more often than not, simply be a fake out.
Watching the differences in the results of economic data between the U.S. and Canada is also a great practice to determine where the USD/CAD is headed.
Because both and US and Canadian data are released just a few hours or minutes apart, variances in results tend to result in exaggerated one-directional moves.
For example, negative US data coupled with positive Canadian data would be a good reason to sell USD/CAD.
Finally, beyond looking at economic data, spending some time to analyze oil price behavior would help a lot in trading the CAD. Because Canada is considered to be one of the world‘s major black crack (oil) producers, changes in its price create quite a hefty impact on the CAD’s value. In details, since 1988, the exchange rate of USD/CAD and the price of oil have been inversely correlated by as much as 68%.
Now that we have given the brief description about Canada, so how can you use this to your advantage？ Well, if you notice that over time that oil prices at your local gasoline station are rising, it could give you the more of evidence you need to short the USD/CAD.
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