USDCAD and Canadian Dollar Futures Seasonality – Best Times of Year to Buy and Sell
Learn the times of the year when the USDCAD and Canadian Dollar FX futures tend to do well and poorly, based on historical tendency.
This is done by looking at seasonality. A seasonal chart shows the tendencies of an asset to move higher or lower, or peak and bottom, at certain times of the year.
Instead of looking at the last 15 years of currency data in chronological order, what if you took each one year period, January to December, and printed it on a transparent slide. Then, put each year on top of each other. Doing this would highlight any period of the year that tends to be strong or weak. Luckily, we don’t need to do that. We can just take an average of the last 15 or 20 years to show what tends to occur at different times of the year (also see Stock Market (S&P 500) Seasonal Trends).
Below we look at the seasonality of Canadian Dollar FX futures, which will also aid in trading the USDCAD forex pair. CAD Dollar futures show the movement of the CADUSD, not the USDCAD. There is a difference. Whatever tendencies we find in the CAD Dollar futures (CADUSD), it will be the exact opposite for the USDCAD.
Canadian Dollar Seasonal Patterns
The Canadian Dollar has seasonal tendencies, and we can see them by looking at the following seasonal chart of CAD Dollar futures, which are traded relative to the USD.
Canadian Dollar Seasonal Chart – 15 and 40 Year
The chart shows the tendencies of the CAD over the last 15 and 40 years.
- January is a poor month for the CAD, as it tends to decline.
- Over the last 40 years, late January to early February is strong, but quickly gives way to more weakness through February and most of March.
- In early March the CAD starts to bottom and rises until the start of May. Over the last 15 years, that rally has been starting earlier, in February.
- Early May the CAD peaks and declines most of the month.
- In late May the price bottoms again and rallies into mid-June.
- Mid-June is weak.
- Late June to mid-July is typically strong. Over the last 15 years, the strength has continued right into mid-September. Over the longer-term, mid-July to mid-August is a flat to weak period.
- The CAD peaks in September and then declines into mid-December.
- In mid-December, the CAD has a brief rally into the end of the year.
The chart below provides a more general guideline of which months tend to be good and poor for the CADUSD. As noted above, some pretty big moves start early, in the middle, or late in a month, so the prior chart is more detailed in that regard. The chart below also only looks at the last 20 years, where the chart above looks at 40 years, which leads to some slight discrepancies.
The number on the top of the column shows how often (%) the price moved higher in that month over the last 20 years. The number at the bottom of the column gives the average percentage rise or decline. This is the graph to use if looking at trading Canadian Dollar futures or the CADUSD.
While the chart above is a more general version of the first chart, it essentially shows the same data, just in a different way.
On the USDCAD graph below, all the numbers are reversed (there may be rounding errors). This is the graph to consider if trading the USDCAD currency pair.
Things To Be Aware of With USDCAD Seasonality
Don’t use seasonality on its own, rather, combine it with current price analysis to determine entry and exit points.
Seasonality gives us windows of time where we can watch for trend reversals and feel more confident if we see a corresponding price pattern during the seasonal windows provides above. We may also feel more confident riding a trend that aligns with the seasonal patterns.
It is important to keep the overall trend of the current market in mind. In uptrends, use seasonal low points to buy. In overall downtrends, use seasonal high points to get short or to sell. Don’t fight a current trend just because the seasonal pattern says the price should be going the other way. As can be seen from the second chart, most months are only slightly favored to move one way or the other.
No matter what the seasonal tendency is, always manage risk. In any given year the price can deviate from the tendency, resulting in large losses if you trust the historical data blindly. Use stop loss orders and control position size to manage risk.
Using seasonality is not a requirement for successful trading, it is simply a tool that swing traders may opt to use if they feel it helps them.
Cory Mitchell, CMT