USDCAD

The currency pairing of the U.S. Dollar and the Canadian Dollar can make your currency trading more predictable. The pair is less prone to wild moves than those that involve the currencies of developing countries. USDCAD offers the opportunity have a part of your Forex portfolio that forms understandable trends. Because the U.S. and Canada are each other’s primary trading partners, you can count on the relative values of their currencies, with just enough fluctuation to create some profitable trades. 

USDCAD Live chart: Current exchange rate

For USDCAD, USD is called "strong," while CAD would be termed "weak." In other words, trading CAD for USD gives you more dollars as long as USD is worth more. For example, if CAD is worth $1.50 in USD, for every Canadian Dollar you invest, you get 1.5 USD. 100 CAD would buy you $150 worth of USD.

The closer the two currencies are, the less valuable the pair is to traders. If USD gains value and CAD does not, you  see a spike in the price because more traders  want it.

Here is a live chart for USDCAD.

Screenshot courtesy of TradingView!

How to trade USDCAD

Because your order for this pair automatically buys USD and sells CAD at the same time, look for trends where USD significantly outpaces the rise of CAD. This will be when U.S. interest rates are rising, or when the value of Canadian imports is falling. Canada provides oil, cars, and aircraft, so pay special attention to these products. 

Also watch for currency interventions. These actions are calculated to make each country’s dollar stronger. For example, in June of 2022, The Bank of Canada began an aggressive hike in interest rates to make the Canadian Dollar stronger. This caused CAD to be the only currency that kept pace with the rise of the U.S. Dollar. 

Let’s look at some trading signals.

None of the results in the table are guaranteed, and these are just some common scenarios, but the idea is that traders want to see USD become significantly more valuable than CAD. This will drive the price up for the pair USDCAD. When USD and CAD move closer to each other, the price of USDCAD could drop.

USDCAD key characteristics

• USD and CAD can individually rise in price - When both currencies go up in value, USDCAD can rise in price if the rest of the world is not keeping up. The pair becomes attractive because both countries are doing well. If the two rise together but the world is keeping up with the pace, you might see a sideways move in the value of USDCAD. It will be attractive, but not as attractive as a pair where the first currency is significantly higher than the second.
• Affected by the price of oil - When oil prices are up, Canada's economy does better. This will raise the value of CAD. This would make USD less attractive and would therefore lower the value of the USDCAD pair. Fewer investors will want the pair if they can't make a good profit by converting CAD to USD.
• Low spreads - The "spread" between the two currencies is relatively low. They are sometimes nearly equal in value. That makes this pairing stable, but it also makes it harder to make huge profits.
• Volatility - This is a stable currency pair, meaning it won't make huge moves. However, there is enough volatility to make it attractive to investors. It may be especially good for beginners since the movements are not major.
• Liquidity - This pair is extremely popular, meaning it is, it is "liquid." That means you can pretty quickly sell your position because a lot of buyers are interested. You are not likely to get stuck holding the pair if you want out.

Why trade  USDCAD

This pair is stable enough to give you some profits without stressing you. It does not make wild moves that will shock you, yet it makes enough moves to let you make money.

The Canadian and U.S. economies are prominent, and you can count on their governments to protect their currency values. Unlike some currency pairs that involve emerging economies, you won't have to worry about extreme crises.

A USDCAD trading strategy

Timing

The best hours to trade USDCAD are 8 a.m. to 5 p.m. Eastern time. This is the North American trading session. This pair is very liquid then and is most likely to offer the best spreads.

Pay attention to U.S. interest rates. When the U.S. government raises rates, the U.S. Dollar tends to rise in value. This can mean USDCAD rises in value. However, also watch Canadian rates. If they rise, the USDCAD pair will lose value because the difference in value between the two currencies will shrink. 

Watch for news about Canadian imports. If their import income rises, so will their Dollar. That will reduce the spread between U.S. and Canadian dollars, making USDCAD less attractive. Conversely, if Canadian imports decline, so will the value of their currency. More people will want the pair because fewer Canadian Dollars will buy more U.S. Dollars.

Trade reversal patterns

Study candlestick trading so you can tell when an uptrend or downtrend in price is about to reverse. 

Let's look at the two types of reversals.

Bottoms

This is how a bottom looks. Prices could rise from here. 

Prices turned and started upward.  

Tops

All uptrends eventually reverse. Learn to spot peaks. 

Buyers gave out and sellers started driving the price down. The more sellers, the lower the rate drops. See the candlestick trading guide to deepen your understanding of trends and reversals. 

Selection

It is wise to have some stable pairs in your Forex strategy. You can choose pairs that behave like USDCAD and give yourself a better chance at success when starting out. 

Some to consider:

• EUR/USD (euro/US dollar)
• GBPUSD–British pound/U.S. dollar
• USDCNY–US dollar/Chinese renminbi
• USDCHF–U.S. dollar/Swiss franc
• USDHKD–US dollar/Hong Kong dollar
• AUDUSD–Australian dollar/U.S. dollar
• USDJPY–U.S. dollar/Japanese Yen

Examine the charts on these and make sure you understand what influences them.

Management

Do not put more than 1-2% of your trading money into any one trade. This will keep your losses to a minimum. If you lose several times in a row, take a breather and study some more.

Be careful when using leverage. "Leverage" is a loan the trading platform makes to you so you can invest. It can increase your investing power, but you do owe the money back. If your trade loses money, you must also pay the loan. This hurts you because you may lose more money than you invested.

Use stop-loss orders. This kind of order is an automatic sell order that triggers when a price drop hits a level you indicate. You will limit your losses this way. 

Consider using limit-buy orders. This type of order indicates the highest price you are willing to pay. It prevents your buy orders from executing too high. 

News

You must pay attention to the news. If bad news hits the U.S. economy, it will affect the price of USDCAD. Of course, the opposite is also true. Good news can boost prices, especially if that news is about the U.S. economy doing better. 

History of USDCAD

You can benefit from looking at how USDCAD has responded to significant market events. Let's look at some recessions and recoveries and how this pair responded.

Economic Boom 1992 to 2002

A strong economy for the U.S. made the U.S. Dollar more attractive, and USDCAD rose in price. The reason for this is investors saw that they could make profits by selling Canadian Dollars and buying U.S. Dollars. The strong U.S. Economy made its goods more valuable, thus making the dollar more valuable. Traders wanted to buy USD with CAD proceeds because they could make an instant profit.

The U.S. economy rose consistently, putting USACAD in a fairly predictable uptrend.

The Attack on the Twin Towers, 2001

The U.S. Dollar lost strength in the years following the attack because business was suffering. The decline in the economy was reflected in the decline of the value in the U.S. Dollar. As the U.S. Dollar dropped closer in price to the Canadian Dollar, the pair became less attractive to traders. When traders are reluctant to purchase a pair, sellers have to keep lowering the price to attract a buyer. 

The Great Recession, 2008

Housing prices fell during the recession, driving the value of the U.S.Dollar down. In fact, there was a domino effect that dropped the prices of most U.S. goods. The U.S. Dollar’s slide brought it closer in price to the Canadian Dollar, so investors could not profit much from trading Canadian Dollars for U.S. ones. The lack of buyer interest caused USDCAD to go down because buyers were not competing to purchase it. Fewer buyers mean lower prices.

Recovery from the Great Recession

The U.S. economy rose beginning in 2011. This recovery from the recession meant the U.S. Dollar was consistently worth more, making it attractive to buyers. U.S. Dollars outpaced Canadian Dollars, meaning you could profit by selling CAD at a low price and buying USD for a higher price. This demand drove USDCAD up.

Uptick After Covid.

You can see a rise in USDCAD as COVID retreats. That is because U.S. companies were able to grow, hire, and profit as business resumed. Wages were better, which meant consumers could buy more. All this added up to a strengthening U.S. Dollar, and trading CAD for USD made good investing sense. 

Future predictions for USDCAD

Long-term predictions

The Fed will stop raising interest rates eventually. This should drive the Dollar down in value. If a recession hits due to the interest rates, expect the Dollar to fall in value. However, the Canadian Dollar will also drop, so the spread for USDCAD may not suffer excessively. Still, expect interest rates to fall and the Dollar to weaken, moving USDCAD down in price.

Medium-term predictions

The U.S. Dollar will be strong as Fed rate hikes continue. This will make USACAD more attractive. However, when rate hikes cease or even drop, the U.S. Dollar will weaken, and USDCAD may come down. This is because Forex investors won’t be able to make as much profit on the difference in price between USD and CAD. 

The other possible scenario is that CAD will drop as much as USD. If they keep pace with each other, the pair USDCAD may still be somewhat attractive because of the spread between the two currencies. An investor could still profit from the difference. USDCAD could move only slightly down or move sideways as buyers and sellers battle to determine its value.

If the price of oil keeps rising and interest rates fall in the U.S. this could make CAD more valuable against USD and drive the price of the pair down. Few may want to trade CAD for USD since they can’t make much on the difference between the two prices.

The difference between trading and investing in USDCAD

Think of yourself as either a trader or an investor. 

Trading USDCAD

"Trading" is about short-term positions. You watch for the daily or weekly ups and downs and try to get in on them. Short-term traders like USDCAD because it is somewhat volatile–just enough to offer some decent spreads. 

Investing in USD and/or CAD

"Investing" refers to holding a position for a year or more. However, you can use a shorter timeframe if market conditions warrant. Still, the idea is to watch long-term patterns.

USDCAD forms long trends. You want to try to enter at the beginning of an uptrend. Stay out during a long downtrend and watch for periods of economic recovery. 

5 Tips for Successful use of USDCAD

1. If both USA and CAD rise or fall about the same, there will be fluctuations in the chart, but remember it is the price spread you are interested in. If they move in tandem, you will see a drop in USDCAD, but not a dramatic fall. Watch to see when one of them changes more than the other.
2. CAD rises as commodity prices go up in Canada, especially oil. This might make USDCAD drop in value as the Canadian Dollar rises against the U.S. Dollar.
3. Listen to announcements of Fed and BOC rates in the United States and Canada. Sometimes they move together, meaning higher interest rates will not guarantee an increase in price for USDCAD because the spread would not increase.
4. Expect liquidity. This popular pairing will usually offer you buyers when you want out of your position.
5. Be careful not to jump into a trade just because the U.S. Dollar is gaining value. Make sure the Canadian Dollar is trailing behind. This will increase the spread between the prices and raise prices on USDCAD.

What are the risks with USDCAD?

Do not get the impression that USDCAD is predictable. It can surprise you. This pair does have long trends, but news about a recession or inflation should change your expectations.

The US economy being all powerful means any sudden changes in US interest rates will usually have an knock on effect to USDCAD.

Separately the both economies are depending on world consumption. A major problem in another part of the world can affect both these economies and their currencies. 

USDCAD: General terminology

Exchange Rate - The value of a currency in the forex market. 

Bid/Ask Spread, or Spread - The spread is the difference between the exchange rate for USD and CAD.

Risk Management - Protecting yourself against losses. Use stop-loss orders and limit-buy orders, and watch the chart daily or at least weekly.

Stop-loss Order - A sell order that triggers automatically when the price drops to a level you specify.

Limit-Buy Order - The highest price you agree to pay for USDCAD.

Leverage - A loan from a broker you can use to buy more USDCAD.

Gapping - This is a jump in prices without any intervening trades. Gaps do occur in USDCAD. The direction of the gap can be up or down. You need a candlestick chart to see gaps.

Reversal - A reversal means the previous trend is about to turn and go in the other direction.  

Conclusion

USDCAD can make you money if you track interest rates of each economy, plus the value of Canadian exports. However, those is just the basics. You need to anticipate how any event will affect the U.S. disproportionately to Canada. It is not so much the rise in currency values as the spread, or difference in price, between USD and CAD. And even that is not the core of the matter.

You are trading based on demand. What will make more traders want USDCAD? The more demand, the higher the price of the pair. Get used to thinking about spreads and demand, and you will be well on your way to trading this pair successfully. 

Frequently Asked Questions (FAQs)

Is USDCAD volatile?

USDCAD tends toward long-term trends. It is just volatile enough to give you some good trading opportunities but not so volatile it will scare you every day. Still, there are volatile times for this pairing, particularly when Canada fails to keep up with U.S. interest rates or when Canada’s exports lose value. 

What is the nickname for USDCAD?

It is called "Loonie ."The Canadian coin has a picture of a loon (the bird) on it.

How much is traded in USDCAD a day?

There are 200,000 to 300,000 trades on average. This makes it one of the most-traded currency pairs. Here is the ranking for most trades for pairs that include USD. You can see tha USACAD is fifth on the list. 

1. EURUSD
2. USDJPY.
3. USDGBP.
4. USDCHF.
5. USDCAD.
6. AUDUSD.
7. NZDUSD.

Is the Canadian a safe currency?

It is safer than most world currencies, but it is considered speculative. Whereas USD is considered a safe haven, CAD is not, because it can experience more ups and downs due to its smaller economy.

Is the Canadian Dollar correlated with gold?

No. Its value depends on the confidence of its citizens and demand for its goods on the world market.  The Canadian Central bank possesses a very small and inconsequential amount of gold. 

Does USDCAD have a big spread when trading?

It has moderate spreads. However, these can become much larger in times of turmoil or when either country outpaces the other in interest rates or growth. A big spread would come from the USD outpacing CAD in price increases.

Which is the safer currency, CAD or USD?

USD is considered safer. CAD is considered speculative. That said, the two countries are each others’ main trading partners, so traders tend to look on CAD as relatively safe. 

Should I invest in USD or CAD?

See what the market does; don't guess what it might do. Watch the spread between USA prices and those of CAD. Also, learn how to read trends. 

Should I trade USDCAD?

It is a good place for a beginner and a reliable place for the more experienced. That said, it is not guaranteed to go up, so do your homework. Don't take risks you can't afford.