USD-CAD

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USDCAD

USD-CAD The US Dollar v/s the Canadian Dollar is a popular currency pair due to the large amount of cross-border trading activity that takes place between The United States and Canada. The Canadian Dollar is often called ‘The Loonie’ because of the picture depicting a loon on the Canadian $1 coin. The Canadian Dollar is often considered a ‘Commodity Currency’ due to the large deposits of natural resources, especially Oil that is mined and exported from Canada; particularly with their neighbor to the south.

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BREAKING DOWN ‘USD-CAD (U.S. Dollar/Canadian Dollar)’

The value of the USD-CAD pair is quoted as 1 U.S. dollar per X Canadian dollars. For example, if the pair is trading at 1.50 it means that it takes 1.5 Canadian dollars to buy 1 U.S. dollar.

The USD/CAD is affected by factors that influence the value of the U.S. dollar and/or the Canadian dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Federal Reserve (Fed) and the Bank of Canada (BoC), will affect the value of these currencies when compared to each other. When the Fed intervenes in open marketactivities to make the U.S. dollar stronger, for example, the value of the USD/CAD cross will increase because it will take more Canadian dollars to purchase the stronger U.S dollar.

The Foreign exchange date convention is the timeframe between a currency options trade on the foreign exchange market and when the two parties will exchange the currencies to settle the option. The number of days will depend on the option agreement, the currency pair and the banking hours of the underlying currencies. The convention helps the counterparties to understand when payments will be made for each trade.

For the convention there are four key dates to consider when trading a particular currency pair:

  • Horizon – the date on which the trade originates (usually today)
  • Spot – the date on which the initial transfer of funds takes place
  • Expiry – the date on which the instrument expires
  • Delivery – the date on which the final transfer of funds generated from the maturity of the instrument takes plac

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