Why is USDCAD an Interesting Asset for Trading
Out of all trading assets part of the Forex dashboard, the USDCAD deserves a special. It is one of the most relevant currency pairs of them all, due to the CAD (Canadian Dollar’s) direct correlation with the price of oil.
Oil and the Canadian Dollar enjoy a direct relationship because of the Canadian economy dependence on the energy market. Its vast oil resources made that a big chunk of its GDP depends on the jobs created in the oil industry, both in upstream and downstream processes.
Moreover, over seventy percent of the Canadian oil exports go to the United States, which is only reasonable considering the two countries share the same border. Therefore, with oil playing an essential role in the monetary flows between the two countries, the first place to see these flows is on the Forex market.
Particularities of the USDCAD Pair
The pair reacts drastically to any oil-related news. One of the oil market-moving news is the inventory level in the United States. It has the power to move the USDCAD to such extreme that many traders don’t even understand why the pair moves while the rest of the currency pairs don’t.
The relationship with the oil inventories is as follows. When the inventories in the United States rise, it means the country won’t import that much oil as it used to, in the period ahead. With most of the oil coming from Canada, this is CAD negative so that traders will buy USDCAD.
On the other hand, if the inventories level drops, it means that the United States will import more oil in the foreseeable future. This will increase demand for CAD and will send the USDCAD lower.
Other factors that influence the oil price from different parts of the world also have a powerful impact on the USDCAD pair. For instance, the OPEC meetings.
OPEC’s acronym stands for the Organization of Petroleum Exporting Countries, and it is one of the most influential international organizations. It meets regularly in Vienna, Austria, and its members decide whether to increase or not the supply of oil in the international market.
Naturally, this creates huge flows on the oil market, transferred directly on the currency market via the CAD pairs. As the most representative CAD pair, the USDCAD is the first one to react.
Another thing to consider when trading the USDCAD pair is the jobs data in the United States and Canada. Jobs creation is on the top of the agenda for all central banks, as they have a strong influence on the wellbeing of a nation.
In the case of the USDCAD, the problem comes from the release time of the two pieces of economic data. Typically they both come out on the same day and at the same time: the first Friday of every month.
It makes trading the USDCAD pair really difficult, as traders don’t know which one of the two economic data matters the most and by what extent.
To sum up, the USDCAD pair is on every Forex broker’s agenda, and its relationship with the oil market is part of all Forex education programs. The next time you open a position on the USDCAD pair, consider the price of oil as the primary driver for it, sometimes even more important than the Bank of Canada monetary policy decisions.