DEFINITION of USD/CAD (U.S. Dollar/Canadian Dollar)
The abbreviation for the U.S. dollar and Canadian dollar (USD/CAD) currency pair or cross. The currency pair tells the reader how many Canadian dollars (the quote currency) are needed to purchase one U.S. dollar (the base currency).
Trading the USD/CAD currency pair is also known as trading the "loonie," which is the name for the Canadian one dollar coin.
BREAKING DOWN USD/CAD (U.S. Dollar/Canadian Dollar)
The value of the USD/CAD pair is quoted as 1 U.S. dollar per X Canadian dollars. For example, if the pair is trading at 1.20 it means that it takes 1.2 Canadian dollars to buy 1 U.S. dollar.
The USD/CAD is affected by factors that influence the value of the U.S. dollar and/or the Canadian dollar in relation to each other and other currencies. For this reason, the interest rate differential between the Federal Reserve (Fed) and the Bank of Canada (BoC), will affect the value of these currencies when compared to each other. When the Fed intervenes in open market activities to make the U.S. dollar stronger, for example, the value of the USD/CAD cross will increase because it will take more Canadian dollars to purchase the stronger U.S dollar.
The value of the Canadian dollar is highly correlated with the price of commodities, especially oil. Because the Canadian economy is heavily reliant on oil, the price of oil dictates the health of the economy. In 2016, when oil prices slumped to decade-lows, trading below $30 a barrel, the Canadian dollar hit a record low, trading to 1.46, meaning it required 1.46 Canadian dollars to buy 1 U.S. dollar.
In the aftermath of the Great Recession and the subsequent quantitative easing from the U.S. Federal Reserve, the Canadian dollar soared against the U.S. dollar to trade below parity, eventually reaching 0.95.