Besides the inverse correlation with oil futures.
I'm taking my first steps in Forex, having only traded stocks and futures until know.
I'm taking my first steps in Forex, having only traded stocks and futures until know.
USDCAD - What should I know before trading the "Loonie"?
- Thread starter Dinosaur_Supervisor
- Start date
Wishing you well with it.
I traded it, on and off, for about four years, as a kind of variation from/adjunct to Cable and EUR/USD, which were my mainstays.
Other than "not trading the news" and this kind of trite, unhelpful observation, nothing specific springs to mind as a "be wary of ..." warning. I think it's a highly tradable pair. It's far from wild, but can trend nicely and I think it's underrated.
I traded it, on and off, for about four years, as a kind of variation from/adjunct to Cable and EUR/USD, which were my mainstays.
Other than "not trading the news" and this kind of trite, unhelpful observation, nothing specific springs to mind as a "be wary of ..." warning. I think it's a highly tradable pair. It's far from wild, but can trend nicely and I think it's underrated.
But the futures contract not forex
US interest rates compared to Canadian interest rates.
Canada has no intention of raising interest rates due to a weak economy and low oil prices. The US has room to raise its interest rates. If they do that will weaken the CAD even more.
> weaken the CAD even more
Yes, CAD is a consensus short.
Yes, CAD is a consensus short.
Perhaps you have that backward? The forward price of a currency is Spot x (1+domestic interest rate)/(1+foreign interest rate). If the interest rate in the U.S. goes up versus Canada, the forward price for USD goes down. Covered interest parity is a completely mechanical calculation which explains pretty much all of the futures price of a currency pair, otherwise you could short the futures of the low interest rate currency and use the proceeds to invest in a bond in the high interest currency and experience risk-free arbitrage. As a result, raising interest rates in the U.S. would definitely make USD futures fall vs CAD, and would tend to put downward pressure on the USD versus the CAD over time.US interest rates compared to Canadian interest rates.
Canada has no intention of raising interest rates due to a weak economy and low oil prices. The US has room to raise its interest rates. If they do that will weaken the CAD even more.
Intuitively you can think of a more extreme example, imagine you were looking at the Lower Sledonia dollar with 40% interest rates versus the USD with 1% interest rates. You'd expect the Lower Sledonia dollar to almost certainly be worth less vs the USD in a year than it is today. If that wasn't the case, everyone would flood into Lower Sledonia dollars and get a free 39% rate of return. Said another way, USD sellers would demand a lower forward price on the Lower Sledonia dollar in order to give up their USD for Lower Sledonia dollars. Obviously this describes the forward curve and not the actual behavior over time; there were many years when you could short the JPY vs the USD/AUD/NZD and make money on the so-called "carry trade", until you couldn't. However in general rising interest rates put downward pressure on the currency with the rising rates.
