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About the AUD/CAD (Australian dollar/Canadian Dollar)
The AUD/CAD pair is the abbreviated term used for the Australian dollar and the Canadian dollar, nicknamed as “Aussie Loonie”. Before we get into the particulars, what exactly does AUD/CAD rate mean? The exchange rate tells you how many Canadian dollars (quote currency) are required to purchase one Australian dollar (base currency). For example, if the pair is trading at 0.95, it means it takes 0.95 Canadian Dollars to buy 1 Australian Dollar.
Breaking Down ‘AUD/CAD’
The Australian dollar is known as a commodity currency due to the role of Australia in global gold production and export. Aussie exhibits a long-term positive correlation with the value of gold.
Whereas, the Canadian dollar is also classified as a commodity currency, as it exhibits a correlation to the energy products crude oil and natural gas. Since the Australian dollar is a first currency (base currency) and the Canadian dollar is a second currency (quote currency), the pair is called a cross currency pair.
What Determines the AUD/CAD Exchange Rate?Several factors can impact the AUD/CAD rate valuation, including:
RBA & BOC Monetary Policies: The Reserve Bank of Australia and the Bank of Canada control the supply of money in the market, to keep the economy on track. A dovish policy, which is also known as expansionary policy, from either of the central banks, weakens the related currency. In contrast, a hawkish monetary policy (contractionary policy) strengthens the currency.
Economic Events: The movement in the Canadian and Australian economic events determine the exchange rates. Top of the line economic events include GDP, Employment Change, Industrial Production, and Consumer Price Index. Better than forecast data increases the demand for related currency and impacts the value of either the Australian Dollar or the Canadian Dollar, causing fluctuations in the AUD/CAD exchange rate.
Correlation is merely a mutual relationship or connection between two or more things.
Positive correlation – The positive relationship merely is when pairs move in tandem with each other.
In the forex world, the AUD/USD, AUD/CHF and AUD/JPY currency pairs are positively correlated. It's because all these pairs have an Australian dollar in the numerator. So, any change in the Aussie will be reflected in these pairs.
Negative correlation – In contrast, a negative relationship is when forex pairs move in the opposite direction. For example, CAD/CHF and CAD/JPY pairs share a negative correlation. It's because the Canadian dollar is the base currency and is in the numerator.
Gold & Aussie: One essential characteristic of the AUD is that it has a high positive correlation with gold prices. The reason behind this is that Australia is the third biggest gold producer in the world. As a result, whenever the price of gold rises or falls, the Aussie goes along for the ride. This will ultimately move the AUD/CAD pair in the same direction.
Crude Oil & Loonie: Typically, the price of crude oil has been highly correlated with the Loonie. Therefore, a rise in crude oil prices increases the value of the Canadian dollar and vice versa. The AUD/CAD shares a negative correlation with crude oil prices.
Major Economic Events:
Gross Domestic Product – the Gross domestic product is the central measure of economic growth in the region.
Employment Change – Both currencies are sensitive to changes in employment, as slacks in the labor market cause a drop in Inflation rates.
Consumer Price Index – Since one of the goals of the RBA and BOC is to maintain price stability, they keep an eye on inflation indicators such as the CPI. If the annual CPI deviates from the central bank’s target, the RBA or BOC could make use of their monetary policy tools to keep inflation in check.
The balance of Trade – Australia and Canada have extremely robust trade sectors, so currency traders and bank officials alike tend to watch changes in each country’s export and import levels.
Political announcements & natural disasters – Besides the scheduled economic events, political elections, new systems, wars, terror incidents, and natural calamities, etc. can all cause severe variations within the AUD/CAD.
The AUD/CAD is traded in amounts denominated in the US Dollar.
Standard lot Size: 100,000
Mini lot size: 10,000
One pip in decimals 0.0001
Pip Value: $7.49
Pip Value = Tick Size x Trade Size x Base Quote/Current Rate