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Drivers behind Foreign Exchange Rate of CAD

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Canada boasts of having the eighth strongest economy in the world and its nominal GDP stands at roughly 1.3 trillion American dollars. Many traders based in the west tend to focus on the New York session where their prime focus is either the American dollar or the Canadian dollar.

This is why focus on the foreign exchange rate changes of the Canadian dollar is so high in the New York session of the forex market. If you are also a trader who primarily trades in this session, then following the fundamental factors that drive the Canadian dollar may be crucial for you as well.

Change in Interest Rates

Changes in national primary interest rates will always have an impact on the way that the foreign exchange rate of the nation’s currency changes in the forex market. In the case of Canada, as in the case of all other countries, the value of the Canadian dollar appreciates if the country’s primary interest rates are increased and drops if the interest rates are reduced.

International Merchandise Trade

The international merchandise trade is nothing but the trade balance of Canada which is a country that depends on the United States of America to import around 75 percent of all its exports.

While the dependence of Canada on the US is worth noting, its trade balance is usually in the positive. Thus, if its trade balance numbers increase then you can expect the foreign exchange rate of the Canadian dollar to increase as well.

Gross Domestic Product Changes

The Gross Domestic Product or GDP is the value of total production of any country including tangible and intangible products alike. Even though general GDP numbers are important, for you as a trader it would be more important to evaluate whether the GDP of a country has gone up in comparison to previous numbers or gone down.

If the GDP of Canada shows growth then you can expect the foreign exchange rate of the Canadian dollars to go up as well because GDP growth is a sign of improving economy.

Ivey Purchasing Managers Index

The Ivey purchasing managers index is essentially the preferred way through which Canada measures the current state of its economy. This is a form of survey where around 175 corporate executives in the country are asked to reveal their purchases in the current month which are then compared to the previous month’s purchases. If the results are above 50 then you can expect the foreign exchange rate of the Canadian dollar to go up and vice versa if the number is below 50.

Consumer Price Index

The stability of prices in the Canadian market is measured with the help of the Consumer Price Index which means that it is a way to measure inflation in the Canada economy. Assessment of inflation numbers depends on the general nature of the country in question.

Employment Numbers

If the employment numbers of Canada are rising then it shows that the country’s economy is creating jobs internally which is good for its economy. This also means that the foreign exchange rate of the Canadian dollar will appreciate.

 

 

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