The Canadian Dollar (CAD) gained across the USD as almost all G10 currencies did during the crisis. The Fed eased too much when compared to the Bank of Canada. Also, a comparison of the two fiscal stimulus packages delivered by the two governments favored a lower USD and a higher CAD.
As a consequence, the USDCAD dropped like a rock after the spike higher in March this year. It is currently back at the 1.30 level – we might say back at the pre-crisis level.
What comes next?
Jobs Data on Friday Makes It Difficult to Trade the Canadian Dollar
Since Canada is an energy-intensive economy (i.e., oil and oil-related products make up a big chunk of its GDP), the CAD performance is strongly linked to the price of oil. But as the price of oil only consolidated for the entire summer around the $40 level, the CAD’s volatility depended on the Canadian economic recovery.
Also, when thinking of trading any CAD pair, think of the big neighbor South of its border. That is the world’s largest economy having the world’s reserve currency, and Canada is pretty much forced to deliver a bunch of its exports to the United States. Only if we consider the proximity factor, the U.S. wins by a mile as transportations costs are a fraction of those needed to export in other parts of the world.
Hence, what is happening with the U.S. economy (i.e., recession, expansion, etc.), matters a lot for the Canadian economy too. This is the explanation why oil inventories in the United States are closely watched by traders having a position on the CAD because an increase or decrease in the inventory levels signal economic contraction or expansion for the period ahead. Hence, a negative for the CAD.
But the most difficult piece of economic data to interpret is the jobs data. Both the U.S. and Canada release the jobs data on the same day – the first Friday of each month. And, at the same time.
Therefore, with the two economies performing similarly (i.e., when there is a recession in the U.S. is likely to have one in Canada too), the two job markets reflect the same thing. This is why many traders avoid having any positions on the USDCAD pair until after the NFP and the jobs data in Canada is released.