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Us Canadian Exchange Rate - Following the US Canadian Exchange Rate

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In order to make a profit by trading forex, it is necessary to have an understanding of how currency pairs behave and why in order to make predictions about the direction that it may go in the future. The US Canadian exchange rate is an interesting pair to follow because of Canada’s unique location close to the US. This location means that imports and exports with the United states play an important part in the Canadian economy. The state of the US economy therefore plays a large part in the success of the Canadian economy.

One of the reasons to focus on the US Canadian exchange rate is the fact that there is a great deal of liquidity. Due to the fact that the two countries share a common border, there is a great deal of money passed between the two countries, making it easy to buy or sell one currency or the other at almost any time of day. Canada is also a very strong economic power, featuring the seventh best standard of living in the world according to the countries Gross Domestic Product per capita.

One of the things that is unique about Canada is that it is both a modern, dynamic economy as well as a heavy exporter of natural goods. Most first world countries’ economies are driven primarily by innovation, services, and manufactured products. Most third world countries have economies that are powered by exporting raw goods. Canada is rare in that it is an exporter of raw goods as well as a first world country. It provides a great deal of oil, timber, and natural gas to the world. Changes in the production of these raw goods have a great deal of impact on the success or failure of the Canadian economy.

For this reason it is referred to as a commodity based currency. Most economies that are heavily driven by commodities are also heavily regulated by the government, making forex trading difficult due to bad liquidity. Canada is an exception, however, and with its unique position close to the United States, this makes the US Canadian exchange rate an interesting figure to watch for traders.

Traders interested in trading the USD and the CAD should pay close attention to the prices of timber, natural gas, and oil, especially within the United States, since most of the goods are exported from Canada to the United States. If the value of these commodities goes up, the Canadian dollar will strengthen, making it a good bet to invest in the CAD. If the prices of these goods drop, on the other hand, it may be smarter to invest in the USD. The US Canadian exchange rate is therefore heavily influenced by the fluctuating price of these commodities.

In contrast, issues that may affect the US a great deal may be less likely to affect Canada. Of course, since the behavior of the USD affects the behavior of every other currency in the world, anything that hurts the US will also hurt Canada. The important thing to keep in mind is that in order to make a profit, it is the relative damage or benefit that is important, not the strength of the overal economy. The US is slightly more driven by manufactured products and services than Canada. If the price of these goods drops, it will tend to hurt the US more than Canada.

When the price of the commodities go up, the Canadian economy is likely to improve quite rapidly. This can cause interest rates to rise in Canada. A strategy known as carry trade can cause people to sell currencies from low interest nations and buy currencies with high interest rates. The carry trade can therefore cause the Canadian economy to swing upward faster than it otherwise might. This means that if interest rates drop in the US, you can expect that an investment in the Canadian dollar is a wise idea. The reverse is certainly true as well, however. If the interest rates in Canada are dropped, regardless of the price of commodities, it may be a good idea to invest in the USD instead. Additionally, the carry trade is only popular in a calm market. Even if the interest rates are higher in Canada than in the US, a volatile market is likely to cause capital flight back to the US.

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