How To Send Money To Canada From The UK

History of the Canadian Dollar (CAD)

The Canadian Dollar is the official currency of Canada, often referred to by traders as the ‘loonie’. This derives from the picture of a loon on its $1 coin. CAD is the canadian dollar’s foreign exchange abbreviation. Like the US Dollar, CAD is decimalised into 100 cents.

The Canadian Dollar is one of the most important currencies in the world. According to IMF data, Canada’s $1.8 trillion GDP is among the top ten in the world. Moreover the country is a member of Group of Seven (G7) which underlines its importance in the global trading network. The CAD is the sixth most traded currency by volume in 2019.

The Bank of Canada controls the origination of the currency and the level of interest rate in the country. Its aim, as stated on its website, is to ‘preserve the value of money by keeping inflation low and stable.’ The institution began as a private institution in 1935 and was nationalised soon after.

The central bank’s monetary board, currently led by Tiff Macklem, meets eight times a year to decide on the policy interest rate (overnight rate) and the appropriate monetary policy to address Canada’s economic concerns. As of June 2021, the policy rate is set at 25 basis points (0.25%).

The most important currency pair for the loonie is that against the US Dollar due to Canada’s proximity to the southern neighbour and its integrated trading pattern with the  largest economic nation.

Factors that move the Canadian Dollar (CAD) exchange rate?

Throughout its history, Canada is a major exporter. The country is blessed with an abundance of natural resources, from oil to wood to precious metals. A natural engine of growth is derived from exporting these commodities to US and other parts of the world such as China. According to XXX, Canada exports about US$380 billion worth of goods, and more than $280 billion of these go to the US. Therefore, a significant part of CAD’s value is derived from commodity prices and commodity cycles.

To understand this relationship, look at the USDCAD’s long-term chart below. The loonie often appreciate during the commodity upswing and depreciate during the commodity bear market. In 2008, at the tailend of the bull market, the loonie even broke parity with the US Dollar.

Over the past year, the currency rallied significantly against the dollar as oil, agricultural and metal prices rebounded significantly.

Another driver of the loonie is of course quantitative easing. Interest rates have stayed low everywhere after the Global Financial Crisis in 2008. This reduces the effectiveness of the key tool in central banks’ arsenal – namely, lowering interest rates. To revive economic growth, central banks have enlarged their balance sheets during economic slowdowns to inject liquidity into the economy.

Look at the Bank of Canada’s balance sheet below. The onset of the pandemic in March 2020 resulted in a massive jump in the balance sheet of BoC. At its peak, the central bank was buying up to C$5 billion worth of securities per week. But as the economy recovers, the central bank is slowly reducing this amount to $3 billion. This has bullish effects on the currency.

On day-to-day data flow, important statistics include GDP, unemployment, inflation, retail sales and sometimes housing. All these data can move the value of the loonie, particularly if they come in significantly higher or lower than expectations.

Bottom line – Like the Aussie Dollar, the Canadian Dollar is often viewed as a ‘commodity currency’ because of its major commodity exports. Therefore, its value can swing wildly whenever turbulence hits the commodity market.

Live Canadian Dollar (CAD) exchange rates

The current best Canadian Dollar (CAD) exchange rate versus other G10 currencies is the mid-market price which is: