USD/CAD Currency Pair – How To Trade it

Volatility Plagues the USD/CAD Pair but That’s Good News for Binary FX Traders

The North American currency pair, the USD/CAD is on the move once again. The Bank of Canada announced the country’s GDP grew 0.3% in December 2016, above forecasts of 0.2%. The news was announced on Thursday, 2 March 2017. Owing to the positive surprise, the CAD firmed slightly against the greenback. In November 2016, the Canadian economy grew by 0.5%, after being upwardly revised. The good news for Canada is that utilities improved by 3.4%, following 3 successive months of declines. This was largely due to natural gas distribution, electric power, and construction. This data bodes well for the CAD, and inspires confidence in the Canadian economy. Other positive metrics in Canada include the business confidence index at 57.20, Manufacturing PMI at 54.70 and capacity utilization at 81.90.

But that’s only one side of the story – the other side is what is happening with the US economy.

US Economic Performance Overshadows Canadian Optimism

US jobless claims – one of the most important measures of the health of an economy – are at a 44-year low. This means that the total number of Americans seeking unemployment benefits is at its lowest level in almost half a century, down to just 223,000. What is particularly important about this metric is that analysts forecast a figure of 243,000 jobless claims. The previous jobless figure was 242,000.

Naturally, this has boosted the USD, and owing to the size of the US economy, acted in an overweight capacity on the USD/CAD pair to drive it stronger. This is the 104th week in succession that jobless claims have been below the critical 300,000 level. The US unemployment rate has inched slightly higher to 4.80%, from a previous reading of 4.70%. However, the US still has an abysmal labour force participation rate at 62.90%, and it has been that way for quite some time.

How should you trade the USD/CAD given the data?

Canadian GDP figures have improved month on month, but the Bank of Canada is not allowing the better-than-forecast figure to increase the interest rate. The Canadian interest rate is at record lows, and the governor of the BOC, Stephen Poloz believes that there is excess capacity in the Canadian economy. This invariably means that monetary easing will continue for some time, weakening the CAD and strengthening the USD/CAD pair. As a binary options trader, you can take your cue from this and go long on the USD.

Perhaps the most important measure of trader activity is the Fed itself. On 15 March 2017 the Fed FOMC will convene to discuss the Federal Funds Rate. There is now well over 70% likelihood that the Fed will increase interest rates by 25-basis points in the region of 0.75% – 1.00% within two weeks. This will drive USD demand higher, and generate sales of CAD in the process. As long as the probability of a rate hike keeps growing, demand for the USD will soar. As evidence of this, the US dollar index is up 0.45% today at 102.23, approaching its 52-week high of 103.82. All the signs appointing the same direction: USD strength.

What’s the final word for binary options traders of the USD/CAD pair?

Barring a reversal in Bank of Canada’s monetary policy (currently accommodative), the Fed will drive dollar strength for 2017. For the year to date, the USD is down against the CAD, but with 3 rate hikes on the table and fiscal policy to kick in – it would be foolhardy to go long on the CAD at this time.