The Canadian Dollar, also commonly referred to as the “Loonie” is Canada’s primary currency. The USD/CAD currency pair is an important one for those who do business between both countries and because it represents the relative strength of the Canadian economy compared to the U.S. economy.

Understanding USD/CAD

Representing the exchange rate between the U.S. dollar and the Canadian dollar, USD/CAD is considered a major currency pair. This pair represents centuries of cross-border trade, shared resources, and the friendly economic rivalry between the United States and Canada. With the U.S. and Canada being such heavily intertwined economies, there is historical significance from the days of the fur trade in the late 1700s to modern oil trading.

What Causes USD/CAD to Move

Several economic factors are behind the movements of USD/CAD. As previously mentioned, these currencies are much like the economic health indicators of each country, with things like GDP growth rates and employment data causing significant fluctuations in the USD/CAD rate. A strong jobs report from either side of the border easily strengthens its currency causing a significant change in the price of the pair.

Another major factor that influences this pair is central bank rate decisions and policies. The Federal Reserve and Bank of Canada wield considerable influence through things like interest rate decisions and monetary policy statements. Forex traders often try to anticipate how policy shifts might cause the USD/CAD to have a major movement in its price.

Canada is also well known for its crude oil exports which has a major effect on this pair’s rate. As a major oil exporter, fluctuations in oil prices can heavily sway the Canadian dollar’s strength, thereby impacting the USD/CAD exchange rate. For example, a spike in the world’s oil prices can cause the Loonie to soar relative to the USD.

Political events including elections, trade agreements, and geopolitical events and tensions are also responsible for causing the USD/CAD to fluctuate heavily. The USD/CAD is particularly sensitive to the political climate affecting trade relations between the U.S. and Canada.

How To Trade USD/CAD

USD/CAD is a quite popular major pair traded among both institutional and retail forex traders because it’s a major pair. While it doesn’t have the same volume as a pair like EUR/USD, it’s still a very liquid pair that offers many great trading opportunities, both from an interday and intraday perspective.

As with any other pair or trading instrument, retail and institutional traders apply a range of trading strategies ranging from typical patterns to indicators, or in our case price action. At Phantom Trading, several of our members utilize the Phantom Trading strategy which focuses heavily on reading price action to find opportunities in this market.

Since USD/CAD has good volatility, there are plenty of great trades to be taken on this pair. Additionally, with the right prop firm or broker, you’ll be able to find great trading conditions with low spreads and commissions which make this an ideal pair to trade.

Another great thing about the USD/CAD pair is that it tends to move in the NY session, which makes it a good pair to trade for those who live in the Americas. That’s not to say it doesn’t also move during the London session because of the USD driving volatility at both major sessions. 

It should be noted, however, that USD/CAD can be affected by certain seasonal trends including fluctuations in oil demand or agricultural export seasons, but this isn’t as much of an issue for those who are trading on a much shorter, intraday time horizon.

Why USD/CAD Is a Great Pair To Trade

It goes without saying, this major forex pair is popular for a reason: it’s volatile. USD/CAD is a fantastic pair for new and old traders alike who are looking for a pair that is somewhat more predictable than EUR/USD or GBP/USD, and offers plenty of intraday and interday opportunities, making it a well-rounded pair to delve into if you’re serious about learning to trade, or are looking for a pair to get your hands dirty with.

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Robert Castillo
FX Trader & Analyst
Writer & Editor

Rob is a funded trader from Toronto, Canada, and has been trading currencies, commodities, stocks, and cryptocurrencies for over 7 years.