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Benefits & Risks Trading USDCAD
Benefits of trading USDCAD
- The US dollar is the most actively traded currency
- Attractive volume, volatility and tight spreads
- USD and CAD are two major FX currencies
Risks of trading USDCAD
- The price of oil can negatively impact the loonie
- US policies can have significant influence over the Canadian dollar
- Lack of capital inflows can impact the loonie
What is the USDCAD and why trade it?
- The USDCAD currency pair is among the most heavily traded pairs in the forex market, accounting for a substantial portion of daily trading.
- When trading the USDCAD, traders are essentially trading the "Loonie," which is named after the Canadian one-dollar coin that features a loon, a type of bird.
- As the USDCAD is not as widely traded as some other currency pairs, it can offer trading opportunities that may not be available in other markets.
- The USDCAD can be traded during the active New York and London trading sessions, making it easier to execute trades during the busiest times of the day.
What drives the USDCAD?
There are many drivers of the currency, including but not limited to:
- Economic news being released, e.g. by the US Federal Reserve Bank (Fed), which can provide traders with insights into potential future market developments.
- The disparity in interest rates set by the Federal Reserve (Fed) and the Bank of Canada (BoC) can influence the relative worth of these currencies.
- Economic indicators, such as Gross Domestic Product (GDP), inflation rates, and employment reports, from both the United States and Canada.
- As Canada is a significant producer and exporter of commodities, such as oil and lumber, changes in commodity prices can affect the value of the Canadian dollar, and therefore, the USDCAD.
- Political instability or changes in government policies can lead to uncertainty in the market and affect the value of currencies.
When is the most active time to trade the USDCAD?
The most active time to trade the USDCAD is typically during the overlap of the North American and European trading sessions, which occurs from 12:00 pm to 4:00 pm GMT. During this time, there is usually increased trading volume and volatility in the market, which can provide traders with more trading opportunities.
What are the advantages of trading the USDCAD?
- The USDCAD is a highly liquid currency pair, which means that there is a lot of trading activity, and it is easy to enter and exit positions at desired prices.
- The high trading volume of this currency pair results in significant volatility, which in turn offers narrow bid-ask spreads.
- Due to being neighbouring countries, their economies operate in tandem, eliminating the uncertainties associated with monitoring distant economies.
- The two currencies are subject to the same North American trading session, and major economic news is often released simultaneously for both.
When can you trade USDCAD?
The currency markets are open 24 hours a day five days a week. As such, the USDCAD pair can be traded at any time while the market is open. There are three primary sessions for the foreign exchange market.
What platforms can I use to trade USDCAD?