The Canadian Dollar (CAD), also known by veteran traders as the Loonie because of the aquatic bird on the one dollar coin, is one of the two main resource-driven currencies. Like the Australian Dollar (AUD), it is heavily influenced by the prices of the major commodites which Canada exports. As commodity prices go up, so often does demand for the CAD. Canada’s main trading partner is the United States, so it is the USD/CAD currency pair that gets most attention from traders.
Canada’s economy is heavily dependent on the raw materials the country produces, include timber, grains, base metals, gold, and oil. It is also a major producer of potash, an important agricultural fertilizer. Seasoned CAD traders will follow commodities prices closely to try to gauge trends in the currency.
The Canadian Dollar was first floated in 1950, although its rapid fall against the US Dollar (USD) between 1960-62 led to it being fixed for a period. It floated again in 1970, and parity with the USD was achieved in 1976. The CAD was cheap against the USD for much for the mid to late 1990s but came back against the greenback over the last decade, achieving parity with the USD again in 2007, and the USD fell as the US went into recession.
The CAD is held as a reserve currency by a number of central banks, particularly in the western hemisphere, where it is favoured by central banks in Latin America and the Caribbean.
Canada follows a transparent free-market system. Its interest rates are set by the Bank of Canada, the central bank, which is tasked with keeping inflation low and promoting the economic well-being of the country. The bank’s governor is appointed by its directors, with the approval of the Canadian cabinet.