Last Update: December 30th, 2020

The Canadian dollar (CAD) is the national currency of Canada. The Canadian dollar is made up of 100 cents, which is usually presented with a “C$”, to allow it to be similarity from other currencies dollars, denominated in such as the U.S. dollar (USD) or Australian dollar (AUD). CAD is considered a strong currency, which shows that the country is economically politically stable. Once the monetary period of the late 2000s, the ‘commodity’ Canadian dollar (CAD) has become one of the most popular reserve currency controls by foreign central banks.

From the historical view, the Canadian dollar reserve currency has been in use since 1858. This came after the Province of Canada replaced the Canadian Pound with its first official Canadian coins. Afterward, the federal government declared the Uniform Currency Act in 1871, which replaced many different regions’ currencies with one general Canadian dollar.

What is USD/CAD (U.S. Dollar/Canadian Dollar)?

The USD/CAD stands for the U.S. dollar versus the Canadian dollar (USD/CAD) currency pair, which tells the reader how many Canadian dollars are required to purchase one U.S. dollar. The USD/AD currency pair trading also knows as the “loonie,” which is the nickname for the Canadian one-dollar coin. The value of the USD/CAD pair is quoted as 1 U.S. dollar per X Canadian dollars. For example, if the pair is trading at 1.20, it takes 1.2 Canadian dollars (the quote currency) to purchase 1 U.S. dollar (the base currency.

Major Factors that Influence the USD/CAD Currency Pair

The USD/CAD currency pair is usually affected by factors that impact the value of the U.S. dollar and the Canadian dollar concerning each other and other currencies. Therefore, the interest rate differential between the Bank of Canada (BoC) and Federal Reserve (Fed) will significantly influence these currencies’ value compared to each other. Apart from this, the Canadian dollar price is also highly correlated with the price of commodities, mainly WTI crude oil. The Canadian economy is heavily dependent on oil; the oil price manages the health of the economy and the currency itself. Thus, the Canadian dollar is often identified as a commodity currency.

Current USD/CAD Price: $

Historical Data Table:

USD/CAD Historical Price Data

Monthly Change

Factors impacting USD/CAD Prices:

As we already mentioned that the USD/CAD currency pair is affected by factors that determine the value of the U.S. dollar and/or the Canadian dollar to each other and other currencies. Hence, the interest rate differential between the Federal Reserve (Fed) and the Bank of Canada (BoC), will affect the value of these currencies when compared to each other.

The BOC and Interest Rates:

Introducing the interest rate could be considered as one of BOC’s most important tasks. Canada’s monetary policy structure is designed to keep inflation low and stable. Thus, the interest rate is determined 8-times a year. However, Canada’s higher interest rates tend to increase foreign investors’ demand for Canadian dollar-denominated securities. Hence, the rate of return of foreign investors is dependent on the anticipated future performance of the Canadian dollar. If foreign investors expect a drop in the Canadian dollar value, they demand a higher interest rate on Canadian dollar securities.

Commodity prices:

The value of the Canadian dollar is correlated to the strength of world commodity prices, especially oil. Commodities represent a larger share of exports in Canada compared to several other countries like the United States. However, the Canadian economy is heavily dependent on oil prices; the oil price manages the economy’s health and the currency itself. As in result, the Canadian dollar is usually identified as a commodity currency. Whenever the commodity prices increase, Canada’s trade terms tend to improve because its assets have become more valuable.

Inflation Rates:

Inflation is the rate at which general price levels rise over time. However, if Canada’s inflation rate were to exceed foreign inflation rates, this would decrease the Canadian dollar’s purchasing power relative to foreign currencies. On the contrary, Canada’s low inflation rate has a positive impact on the exchange rate, which tends to underpin the local currency.

Economic Data:

The economic data such as Consumer Price Index (CPI), Gross Domestic Product (GDP), Trade Balance, Retail Sales, Labour Force Survey (the Canadian unemployment statistic), Consumer Price Index, and Industrial Price Index have a great influence on USD/CAD prices. These data are important to understand the stock market and especially the direction of the CAD.

Geopolitical Events:

Canadian residents choose a prime minister every 4 to 5 years, creating political struggles between citizens and parties. The Trans-Pacific Partnership (TPP) would impose tariffs, foster trade to boost growth, and deepen economic relations. As per the Worldwide Governance Indicators (WGI), Canada ranks highly for its political stability and government effectiveness, which helps maintain stability in the economy and makes trading more efficient. This, in turn, underpins the local currency.

Political Conditions:

In 1988 Canada approved the Free Trade Agreements with many other nations, which led to foreign trade is the foundation of Canada’s economy. However, Canada imports and exports with many countries, but the United States is still its largest trading partner. Canada and the United States have a closely-knit nation, and they rise or fail together. Apart from this, Canada ranks highly in the percentile of the absence of violence and terrorism. At the same time, the Canadian national debt is over a trillion dollars.

International Relationships:

Relations between countries tend to grow or undermine their economies. They increase the range of consumers reached geographically and demographically through interactions such as imports and exports, but they also allow the other country’s economic fluctuations to affect their economy.

Productivity:

The amount of production that can be produced with a given level of inputs can be a factor in determining the exchange rate through its effect on relative prices and international competitiveness. For example, if Canada’s productivity were to grow quicker than in the U.S., the prices of Canadian goods would become more competitive and, with time, Canadian output and exports would increase, which tends to underpin the demand for Canadian dollars.