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#1 04-09-2020 09:38:20

johnedward
Admin & Trader
From: Paris - France
Registered: 21-12-2009
Posts: 2910
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USD/CAD: big news hits today for the Canadian dollar

USD/CAD: big news hits today for the Canadian dollar


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The CAD (Canada's dollar) appreciated against the USD, as did almost all G10 currencies during the virus situation. The Fed relaxed too much against the Bank of Canada. In addition, the comparison of the two fiscal stimulus packages put in place by the two governments has favoured a falling USD and a rising CAD.

As a result, the pair fell like a rock after peaking in the first quarter. It has now returned to the pre-crisis level of 1.31 - one could say the pre-crisis level.

What will happen next?

Today's employment data makes trading the CAD tricky.

Because Canada is an energy-intensive economy (oil and petroleum products account for a large portion of its GDP), the CAD's performance is strongly linked to the price of oil. However, as the oil price consolidated throughout the summer only around the $39 level, the CAD's volatility depends on Canada's economic recovery.

Also, when you consider trading a CAD pair, remember the U.S. It is the largest economy in the world that has the world's reserve currency, and Canada is practically obliged to deliver a large portion of its exports to the United States. Only when you consider the proximity factor does the U.S. win the game, as transportation costs are only a fraction of those needed to export to other parts of the world.

Therefore, what happens with the U.S. economy (i.e. recession, expansion, etc.), matters to the Canadian economy as well. That's why oil inventories in the U.S. are closely monitored by traders with a CAD position, as an increase or decrease in inventory levels signals an economic contraction or expansion for the period ahead. Hence a negative position on the CAD.

But the most difficult piece of economic data to interpret is the employment data. The United States and Canada release employment data on the same day - today, the first Friday of each month. And, at the same time.

As a result, because the two economies perform similarly (that is, when there is a recession in the United States, there is likely to be one in Canada as well), the two job markets reflect the same thing. For this reason, many traders avoid holding positions in the USD/CAD pair until the NFP and Canadian employment data is released.

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