Canada… Uncle Sam’s good friend, beautiful environment, deeply influenced by France, half of the area is frozen. Here created some of the most surprising things in the world, such as basketball, baseball, maple syrup and smart beans.
Canada occupies most of North America, extending from the Atlantic Ocean to the Pacific Ocean. It consists of 10 provinces and 3 territories and is one of the most developed countries in the world.
In terms of land area, Canada ranks second in the world, second only to Russia! Considering its size and its contribution to the world, you can imagine how important Canada and its currency, the Canadian dollar, play in the foreign exchange world.
Neighboring countries: United States
Area: 3,854,085 square miles
Population density: 8.3 people per square mile
Head of State: Queen Elizabeth II, represented by Governor David Lloyd Johnson
Prime Minister: Stephen Harper
Currency: Canadian Dollar (CAD)
Main imports: mechanical equipment, motor vehicles and accessories, electronic equipment, crude oil, chemicals, electricity, durable consumer goods
Main exports: motor vehicles and accessories, industrial machinery, aircraft, communication equipment, electronic equipment, chemicals, plastics, fertilizers, wood pulp, wood, crude oil, natural gas, electricity, aluminum, Nash (Steve Nash), Crosby (Sidney) Crosby)
Import partners: US 50.6%, China 11%, Mexico 5.5%
Export partners: US 74.5%, China 4.3%, UK 4.1
Time zone: West Eight District, West Seven District, West Six District, West Five District, West Four District,
Canada is a resource-based country, which means that its economic growth is mainly through the use and export of its natural resources.
According to data from the International Monetary Fund (IMF), Canada’s economic aggregate ranks tenth in the world, which makes it one of the G8 member countries. It is also the seventh largest gold producer and oil producer in the world.
Despite the robustness of industry and manufacturing, Canada’s GDP mainly comes from its service sector. Three-quarters of Canada’s workforce is employed in its advanced service sector, which creates 70% of the country’s GDP annually. Next time you see a Canadian, go ahead and make a bet with him that he is working in the service industry. In most cases you will win.
The Canadian economy really started to function well in January 1989, when the Free Trade Area Agreement came into effect. This agreement removes all tariffs between the United States and Canada. In fact, Canada exports more than 70% of its goods to the United States.
Monetary and fiscal policy
The Bank of Canada is the competent authority for the country’s monetary policy. Monetary policy decisions are made by the management committee. The management committee is composed of the bank president, senior vice presidents and four other vice presidents. Unlike other central banks, the Bank of Canada has no fixed policy adjustment time. The management committee meets every day and can decide to change the monetary policy at any time.
The Bank of Canada’s directives are similar to other central banks because their purpose is to ensure that the Canadian dollar’s price is stable, and the country’s inflation rate is within 1% to 3%. The Bank of Canada achieves its goals through open market operations and constant adjustment of bank interest rates.
The Bank of Canada’s implementation of open market operations policies is achieved through the use of large value transfer systems (LVTS). LVTS enables commercial banks across Canada to complete daily operations by borrowing from each other. The interest rate for these transactions is called the bank discount rate. By changing the bank discount rate, the Bank of Canada can control the amount of money in the economy.
To make this more vivid, we assume that the bank discount rate is 2.00%. At a regular meeting, the Bank of Canada believes that the depreciation of the Canadian dollar is faster than expected, which will cause the prices of goods and services to rise. Therefore, the Bank of Canada decided to increase the bank discount rate to 2.50%.
As the bank discount rate increases, the interest to be paid to the lender will increase. Conversely, if the bank discount rate decreases, companies and consumers will increase the loan amount. Now that consumers have less money in their pockets, their chances of spending are reduced, and further inflation will be prevented. Clear-minded companies don’t raise prices when no one wants to spend, do they?
Understanding the Canadian Dollar
You may wonder why the alias of the Canadian dollar is the name of the Canadian national bird, Luni… that is because Luni is inscribed on the Canadian dollar coin. Let’s take a look at Luni’s attributes:
Black cocaine and me.
Historically, the price of black cocaine is highly correlated with the USD/CAD movement. Usually the oil price rises and the Canadian dollar rises accordingly. If the price of oil is expected to increase in the next few years, then you definitely want to sell the USD/CAD quickly.
My working hours are short…
The USD/CAD movement remained within a narrow range for most of the day. Only when the American breakfast time overlaps with the European trading hours and the US trading hours, the currency pair is more active.
…Different from my best foreign friend Dollar…
The key factor to note when trading in USD/CAD is that its direction of change is closely related to changes in the US economic situation. Remember, except for neighboring countries, the volume of transactions between the United States and Canada is huge. The prosperity of the American economy will follow the prosperity of the Canadian economy. So when you plan to trade the Canadian dollar, take a moment to see how the US economy is doing.
…But I am still active during the US trading hours
The Canadian dollar will not change significantly before the start of the US trading session. Changes in the Canadian dollar during Asian trading hours and European trading hours are small.
Important economic indicators related to changes in the Canadian dollar
Consumer Price Index (CPI): Like other central banks, the Bank of Canada’s goal is to control inflation. Because consumer price indexes track the price changes of goods and services, this data is closely watched by currency dealers.
Gross Domestic Product (GDP): GDP is a measure of Canada’s overall economic situation. It reflects whether the economy is growing.
Trade balance: Like other countries based on commodity transactions, Canada’s economy is susceptible to import and export activities.
Ivey Purchasing Manager Index (PMI): PMI investigates whether the company’s economic expectations are optimistic or pessimistic. A baseline reading above 50.0 indicates that business conditions are improving and vice versa.
What factors affect the change of the Canadian dollar?
U.S. economic data
The release date of US economic data and Canadian economic data are similar. The negative data in the US report and the positive data in the Canadian report will cause the price of the USD/CAD to fall sharply. On the contrary, the positive data in the US report and the negative data in the Canadian report will cause the price of USD/CAD to soar.
Mergers and acquisitions
Due to the proximity of the United States and Canada, mergers and acquisitions between companies are very frequent. This has led to a large amount of funds flowing between the two countries, which has a great impact on the foreign exchange market.
For example, in order for a US company to acquire a Canadian company, he must first convert the US dollar into Canadian dollars to complete the transaction. Think about the amount of money that needs to flow from the foreign exchange market for this transaction.
The number of USD/CAD transactions is measured in USD. A standard lot is $100,000, and a mini lot is $10,000.
The value of each point is measured in Canadian dollars and is calculated at the current price of USD/CAD (1.001).
Gains and losses are denominated in Canadian dollars. For a standard lot, the value of each point of change is $10. For a mini lot, the change for each lot is $1. For example, if the current exchange rate of USD/CAD is 1.1000, then the value of one standard lot is 6.72 USD.
The calculation of margin trading is based on US dollars. With a leverage of 100:1, to trade USD 100,000/CAD is USD 1,000.
USD/CAD trading tips
Because the USD/CAD movement is only the most active during the US trading session, there may be false changes during the other two trading sessions. This means that during the European trading session, if the USD/CAD movement breaks a support level, in most cases, this is only a false break.
Viewing the difference between US economic data and Canadian economic data is also an important step in determining the direction of the USD/CAD movement. Because the data published in the United States and Canada differ by only a few hours or minutes, the difference between them will increase the degree of change in a certain direction.
For example, negative US data and positive Canadian data will be a good reason to sell USD/CAD.
Finally, in addition to focusing on economic data, spending a little time studying oil price changes will also help Canadian dollar transactions.
Because Canada is one of the world’s major oil producers, changes in oil prices have a great impact on the value of the Canadian dollar. In fact, since 1988, the inverse correlation between changes in the exchange rate of USD/CAD and oil prices has reached 68%.
How do you use this? If you notice that the price of gasoline in your area has gone up, you will be more certain that you can short the USD/CAD.