🇨🇦 What is USD/CAD?
USD/CAD (also known as "Loonie") is the US Dollar against the Canadian Dollar. It's strongly correlated with oil prices, as Canada is a major oil exporter. Understanding this correlation is essential for fundamental analysis and trading this pair effectively.
Introduction to USD/CAD
USD/CAD is a commodity currency pair with one of the strongest correlations in forex - its relationship with crude oil prices. When oil prices rise, CAD typically strengthens, causing USD/CAD to fall.
Why Trade USD/CAD?
- Oil Correlation: Strongest correlation with oil prices
- Clear Trends: Oil-driven movements
- Liquid: Major currency pair
- Predictable: Oil price direction predicts CAD direction
- Trading Opportunities: Good for swing trading
USD/CAD Characteristics
Volatility
- Average Daily Range: 60-90 pips
- Volatility: Moderate
- Best for: Swing trading and position trading
- Risk: Moderate
Trading Hours
- Most Active: New York session (13:00-22:00 GMT)
- Toronto Session: 13:00-21:00 GMT
- NY/Toronto Overlap: 13:00-21:00 GMT (highest activity)
- Asian Session: Lower volatility
USD/CAD Trading Strategies
Strategy 1: Oil Correlation Trading
Best For: Trading based on oil prices.
How It Works:
- Monitor crude oil prices (WTI or Brent)
- Oil prices rising = CAD strengthening = USD/CAD falling
- Oil prices falling = CAD weakening = USD/CAD rising
- Enter USD/CAD in opposite direction of oil
- Use proper risk management
Correlation: 0.7-0.9 (very strong)
Strategy 2: Trend Following
Best For: Trend following strategies.
How to Trade:
- Identify trend using moving averages
- Enter on pullbacks using Fibonacci retracements
- Use trendlines for confirmation
- Target: Trend continuation
Strategy 3: Divergence Trading
Best For: Trading when correlation breaks.
How to Trade:
- Identify normal oil-CAD correlation
- Wait for divergence (CAD not following oil)
- Enter expecting correlation to return
- Use mean reversion approach
Risk: High (divergence may continue)
Key Economic Factors
Canada Factors
- Oil Prices: Crude oil prices (most important)
- BoC Policy: Interest rate decisions
- GDP: Economic growth
- Employment: Canadian employment data
- Trade Balance: Trade balance
US Factors
- Fed Policy: Interest rate decisions
- NFP: Employment data
- GDP: Economic growth
- Oil Demand: US oil consumption
Best Timeframes for USD/CAD
Day Trading
- Primary: M15, H1
- Hold Time: Hours
Swing Trading
- Primary: H4, D1
- Hold Time: Days to weeks
Position Trading
- Primary: D1, W1
- Hold Time: Weeks to months (oil trend following)
USD/CAD Trading Checklist
Before trading USD/CAD:
- [ ] Oil price trend identified
- [ ] Oil-CAD correlation confirmed
- [ ] Trading session identified (NY/Toronto)
- [ ] Trend or range identified
- [ ] Support/resistance levels marked
- [ ] Economic calendar checked (Canada and US)
- [ ] Stop loss set
- [ ] Take profit set
- [ ] Risk/reward ratio at least 1:2
- [ ] Position size calculated using risk management rules
Common USD/CAD Mistakes
- Ignoring Oil Prices: Strongest correlation in forex
- Assuming Perfect Correlation: Correlations can break
- No Stop Loss: High risk
- Wrong Timeframe: Using inappropriate charts
- Overtrading: Too many positions
Summary
USD/CAD is a commodity currency pair with the strongest correlation to oil prices in forex. Success requires understanding oil-CAD relationship, monitoring oil prices, and proper risk management.
Key Takeaways:
- Strongest correlation with oil prices (0.7-0.9)
- Oil up = CAD up = USD/CAD down
- Oil down = CAD down = USD/CAD up
- Monitor oil prices constantly
- Trade during NY/Toronto session
- Always use proper risk management