{x} | Trading.live

The Canadian dollar (CAD) is the official currency of Canada. It is also sometimes informally referred to by traders as the “Loonie”. Like the Australian dollar, the Canadian dollar is also a commodity currency.

CAD and oil

Oil is one of the world's necessities. As a net oil exporter, Canada is severely hurt by declines in the price of oil, while Japan is a major net oil importer tends to benefit from oil declines. When oil goes up, CAD goes up, and Yen goes down, and vice versa.

As Canada exports over 3 million barrels of oil and petroleum products per day to the United States, when oil goes up, USD/CAD goes down; when oil goes down, USD/CAD goes up.

On a day-to-day basis, the correlation between oil and the Canadian dollar may break, but over the long term it has been strong, because the value of the Canadian dollar has good reason to be sensitive to the price of oil.

What moves CAD?

I. Bank of Canada (BOC) Monetary Policy 

The BOC’s mandate is to keep inflation between 1-3% as a means of providing a stable price environment over the medium term. It sees a flexible exchange rate as instrumental in being able to achieve this, while also providing a “buffer” against internal and external economic shocks.

The central bank can use conventional policy instruments such as interest rate hikes and cuts as well as open market operations (among other monetary levers) to achieve its target. The BOC can also use non-standard policies such as Quantitative Easing that emerged after the 2008 global financial crisis and follow-on Great Recession.

The central bank also holds press conferences where markets can approximate the direction of interest rate hikes or cuts based on hawkish or dovish rhetoric from BOC officials. Additionally, indicators of economic activity such as GDP and CPI reports, along with PMI surveys, can have a noteworthy effect on the Canadian Dollar.

Unexpectedly positive or negative data from these various releases