What Is a Canadian Dollar (CAD)?

The Canadian dollar (CAD) is the national currency of Canada. The Canadian dollar is made up of 100 cents and is often represented with a "C" together with the dollar sign as C$, to allow it to be distinguished from other currencies denominated in dollars, such as the U.S. dollar (USD) or Australian dollar (AUD). CAD is considered to be a hard currency, meaning that because it comes from a country that is economically and politically stable (Canada is a G7 country), the currency tends to be relatively stable (over shorter periods of time). Since the financial crisis of the late 2000s, the CAD has also become more popular as a reserve currency held by foreign central banks.

Understanding the Canadian Dollar (CAD)

The Canadian dollar (CAD) has been in use since 1858 when the Province of Canada replaced the Canadian Pound with its first official Canadian coins. In 1871, the federal government passed the Uniform Currency Act, which replaced various currencies used by the different provinces with one national Canadian dollar. Over its history, the Canadian dollar has shifted between being pegged to gold or the U.S. dollar and being allowed to float freely. In 1950, the Canadian dollar was first allowed to float. From 1962-1970 it was pegged again, as part of the Bretton Woods system of fixed exchange rates. The currency was again allowed to float in 1970 when the Bretton Woods system began breaking down, and as with all major world currencies it has floated since then.

The usual benchmark used for the Canadian dollar in foreign exchange markets is the U.S. dollar, as one of the four most common currency pairs, (the currency pair is usually written USD/CAD). Because oil is such an important export for Canada, the performance of the CAD is often correlated to movements in the oil price. Because of this correlation, the CAD is considered a commodity currency. The U.S. is by far Canada's largest trading partner, so the CAD is also sensitive to developments in the USD. More recently, USD/CAD has occasionally been affected by speculation over potential changes to NAFTA.

In the foreign exchange markets, the CAD is also sometimes called the "loonie," a nickname derived from the Canadian one-dollar coin which bears an image of a loon.