Currency trading the Canadian dollar is special. A lot of traders trade with CAD due to some of its interesting features. In order to find out if trading CAD is suitable for you, you must understand these features.
The main exports of some countries are raw materials. This includes Canada whose main export is oil. Certain countries also export raw materials such as valuable stones or metals. For example, the main export of Australia is gold. The currencies of the countries that mainly export raw materials are commodity currencies.
Canada is, in fact, the second larges producer of oil only behind Saudi Arabia. The importance of oil in the industrialized world is well known. It is vital from small garages to large industrial plants. Therefore, oil is also fondly called ‘black gold’.
The value of CAD is very closely related to the price of oil and the conditions in the oil market. Let us look at an example. Assume that a large oil field is discovered in Saudi Arabia. This means the share of Canada in the oil market is reduced as a result of which the price of CAD would drop.
A majority of Canada’s oil exports go to USA, which is the largest consumer of oil. It is from Canada that USA meets the most of its oil demands. Therefore, the oil prices would also affect the USD. The same movement in oil prices would therefore have opposite effects on the CAD and the USD. That is, if the oil prices rise, the USD/CAD would fall. A fall in oil prices would result in a rise of the USD/CAD. A trader with a good understanding of the oil market can trade profitably with the USD/CAD currency pair.
Traders with an inclination towards the commodity markets can make profit trading the USD/CAD currency pair. However, the oil prices are not the only factor affecting the value of the CAD and the USD. There are several political and economic factors involved. Apart from understanding the oil market, you must be aware of the other happenings affecting the USD/CAD value.
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