USDCAD USD/CAD

USDCAD is one of the majors in the currency market. The Canadian Dollar, or Loonie, is included in the U.S. Dollar index (DXY), which represent the ratio of the American currency movement to six major world currencies. The Loonie has a share of 9.1% in the DXY calculation following the Euro, Japanese Yen, and British Pound. Given its relatively low share in the DXY movements greater affect the USDCAD than the momentum concerning the Loonie affects the index. However, there are some specific features for the Canadian Dollar that have an impact on it:
- The Canadian Dollar is a commodity-driven currency, which has exposure to some commodities like crude oil and gold, which the country largely exports. So, the movement of crude and gold prices drive the Loonie exchange rate;
- CAD is also a risky asset as it is a commodity-driven currency. Thus, rising appetite for risk, booming stock markets, global declining interest rates, and moderate inflation supports the Loonie, and puts pressure on USDCAD;
- The Canadian economy is heavily dependent on the United States, its major trading partner that consumes 85% of exports originating from Canada. Any negative developments for the U.S. economy puts pressure on the Canadian Dollar exchange rate. Such issues may amplify or limit USDCAD movements, or the Loonie movements vs European currencies. So, if the U.S. economy is slowing down, the Federal Reserve will lower its interest rates, which is a negative development for the U.S. Dollar, the DXY will go down, and the Dollar will weaken against EUR, GBP, CHF, or other currencies. But this is also negative for the Loonie. So, the USDCAD could go up despite a weakening Greenback.
Such incentives could amplify CAD movements, especially on cross-rates with elevated volatility. When the Euro or the British Pound are strengthening, the EURCAD and GBPCAD are gaining more momentum with the weaker CAD.