The Canadian dollar is sometimes referred to as the Loonie because of the bird appearing on the one dollar coins. Foreign exchange brokers use the symbol CAD to represent Canada’s currency.
As a country of roughly 30 million people and primarily dependent on energy, mining, agricultural, with limited technology export business, the CAD offers fairly dependable behavior relative to several key markets.
Here are 4 Key Canadian Dollar Facts that Will Surprise You:
Canada trades energy products with the United States as well as other countries along with minerals and metals for the majority of its positive trade flows. Consequently, the value of oil prices or energy products generally powers the CAD up or down. The correlation between energy prices and the Canadian dollar is so tight that advanced traders can use the CAD as a proxy for trading oil.
Even more beneficial, the CAD will lag the price trends of the energy complex. This means that potentially advanced traders could predict moves in the value of the CAD versus the USD based on the energy complex moves.
While the US dollar and the US economy can move Canadian economic indicators and the value of the CAD both up and down, neither Canada nor its currency has a major impact on the United States. Certainly the border towns and critical industries for both countries will be impacted when Canada slows down. However, the United States is far larger and more robust in terms of diversification such that Canada’s slowdown only impacts the US economy at the margin.
Commodities also predict CAD to USD exchange rate, especially when gold and silver are rising relative to the US dollar. Canada is home to several major mining companies as well as hundreds of smaller mining companies. Even if the mining headquarters is not where the actual mining occurs, profits from the mining are repatriated to Canada. This inflow of currency in exchange for gold and silver and other commodities results in a strengthening Canadian currency base.
Surprisingly, even with substantial gold and silver mining within the country and mining companies operating around the world, Canada has sold almost all of its gold. The CAD has virtually no gold backing the value of the currency. For anyone holding wealth in the form of CAD, the fact that there is zero gold backing the currency introduces significant currency inflation risk.