No matter what currencies a speculator trades it is important to understand the fundamental economic factors which affect movements in the currency’s price movements. Like any currency, the value of the Canadian dollar is significantly affected by the central bank’s monetary policies. Also, fluctuations in the commodity markets can also be a strong influence on the value of the Canadian dollar.
Bank of Canada
The Bank of Canada (BoC), Canada’s central bank, was established through the Bank of Canada Act of 1934. The BoC has several mandates: maintaining low and stable inflation, financial stability, a secure and safe currency, efficient management of public debt and government funds. Canada’s central bank will look at economic data and other information it deems relevant to make the best decisions aimed at maintaining its goals. Therefore, forex traders will pay attention to these same data points and press releases from the BoC as well as speeches made by BoC officials in order to gauge the probability of future monetary decisions.
Effect of Oil Price on the Canadian Dollar
Canada produces approximately 4 percent of the world’s oil supply, making oil a large portion of Canada’s exports. Therefore, the price of oil has a large effect on the Canadian economy which in turn affects the value of the Canadian dollar. Generally, increases in the price of oil is considered bullish for the Canadian dollar while decreases are seen as bearish.
On the other hand, there are other aspects besides the fundamental economic drivers that can affect fluctuations in the Canadian dollar. Political factors can also result in unexpected price movements. Additionally, technical analysis can also be helpful in forecasting market movements in the Canadian currency. Forex traders should be aware of all of these factors when making trading decisions.
Le Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.