What should every FX trader know about the Canadian dollar?

Every FX trader should know about Canadian dollars.

Speculators are increasingly turning to foreign exchange, or forex, trading as a viable alternative. It is simple to set up virtual trading accounts to practice trading methods because of the advertisements that promise “commission-free” trading, access to the market at all times, and large potential profits.

Even though the foreign exchange market is vast, each and every forex trader has to compete with tens of thousands of other traders, many of whom are employed by big banks and institutions. The advent of predictive analytics models and machine-learning capabilities has transformed the forex market in recent years, giving traders a significant edge thanks to artificial intelligence.

Investors should do their research thoroughly before joining the forex market, since it is not a market for the unprepared. Would-be traders should know the fundamentals of the main world currencies, as well as the specific factors that affect their value.

Forex trading is dominated by the dollar, which is the sixth most held reserve currency, and there are only eight major currencies that account for over 80% of forex trading volume. The Canadian dollar (also known as the “loonie”) is one of these major currencies and the sixth most held reserve currency.

The Canadian dollar’s position as the world’s 10th-largest economy (measured in US dollars of GDP) makes its placement as the world’s 10th-best currency rather exceptional.

Central banks back all of the world’s main currencies on the currency market. Bank of Canada officials try to strike a balance between measures that encourage job creation and economic development and those that keep inflation under control. Foreign commerce is important to Canada’s economy, however, the Bank of Canada does not interfere in currency markets. The last time the government did so was in 1998 when it concluded that intervention was useless and unproductive.

Economy and Canadian dollar

According to the World Bank’s 2017 GDP rankings, Canada ranked tenth, including two short recessions in the early 1990s and 2009 (both lasting less than a year). Canada has experienced consistently high inflation rates. Considering Canada’s exposure to commodities is also critical when assessing the country’s economic condition. This, according to some of the best Forex brokers in Canada, may have an impact on investor sentiment toward the loonie since Canada is a major producer of many commodities, including petroleum, minerals, wood products, and cereals. Despite the fact that the average age of Canadians is higher than that of the rest of the world, Canada is younger than the majority of other industrialized nations. Immigration is very easy in Canada due to its liberal policies, although the country’s demographics are not especially concerning for the economy.

Canadian dollar traders keep an eye on US developments because of the close commercial connection between the two countries (both countries are at or near the top of their respective import/export markets). Despite the fact that the country’s economic policies vary greatly from those of the United States, circumstances in the US unavoidably affect Canada.

Canada was spared many of the bad mortgage issues that beset the US due to the country’s financial sector structure. In contrast, Canada’s technology sector is a smaller part of the country’s economy, which contributed to the Canadian dollar’s relative weakness during the US tech boom of the 1990s.

A large variety of factors are used in economic models that attempt to determine the “correct” foreign currency exchange rates, however, these models are notoriously incorrect when used in place of actual market prices (sometimes just a single variable such as interest rates). In contrast to investors, traders consider a far wider variety of economic data when making trading choices, and their speculative outlooks have the power to affect rates in the same way that optimism or pessimism in the stock market does.

Inflation and trade balances are among the most important economic indicators. Regular releases of this information are made accessible to the public by numerous brokers and financial information providers including the Wall Street Journal and Bloomberg. Foreign exchange rates may be affected by a variety of other factors, including the availability of labour, interest rates (including the dates and times of central bank meetings), as well as the daily flow of news. These include natural catastrophes, elections, and changes in government policy.

The Canadian dollar’s performance is often tied to changes in commodity prices, as is the case for many nations that depend heavily on exports of raw materials. When oil prices rise, investors prefer to go long on loonies and short on countries that import oil (such as Japan). This is especially true for Canada, where the price of oil has a major impact on currency movements. Similarly, nations like China, which are significant buyers of Canadian products, have an effect on the Loonie’s fiscal and trade policies.

The loonie’s value may be affected by capital inflows. A surge in interest in Canadian assets may occur when commodity prices are high, and this inflow of money can have an effect on currency rates. However, for the Canadian dollar, the carry trade is of little importance.