CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is a Loonie?

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In this short and comprehensive article, we explain in more detail what a loonie is, where the term comes from and what its role is in the forex market. The loonie is a colloquial term for the US dollar versus Canadian dollar currency pair. It is one of the 10 major currency pairs, and as such often of interest to forex traders around the world.

What Is a Loonie?

In forex terminology, the ‘loonie’ is a nickname for the US dollar vs Canadian dollar (USDCAD) currency pair. The term is derived from Canada’s $1 coin, which has a picture of a common loon (a bird) on the back side.

USD/CAD is a major currency pair and is heavily traded by both traders and institutions all over the world. Major currency pairs involve the currencies euro, US dollar, Japanese yen, pound sterling, Australian dollar, Canadian dollar, and the Swiss franc. The major currencies are those in which most of the world’s foreign transactions are denominated, which means they are the most liquid. They are also the currencies that countries most commonly value their own currency against.

The USDCAD market typically shows a negative correlation with other US based currency pairs, such as the EURUSD, GBPUSD and AUDUSD, and is one of the most liquid currency pairs in the forex market.

Both USD and CAD are also known as a petrocurrency, which means that they are the currencies of oil producing nations.

USDCAD Chart

Source: xStation
Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.
 

In the example above, the green and red bars represent the loonie, while the white and blue bars represent oil. As you can see, the USD/CAD is negatively correlated with oil, meaning a rising oil price would typically mean a falling USD/CAD rate. If we were to flip the oil chart, however, then both markets would behave very similarly, as shown below.

USDCAD Chart

Source: xStation
Please be aware that the presented data refers to the past performance data and as such is not a reliable indicator of future performance.
 

The Importance of the Loonie in the Global Economy

The Canadian dollar is still among the top 10 most traded currencies on the Forex market. In the first decade of the new millennium, the loonie was among the best performing currencies against the USD, thanks to Canada’s burgeoning exports of energy and commodities.

This changed in the wake of the 2008 financial crisis, when the loonie fell sharply in value against the USD, as most investors sought the safety of American assets. In the following years, the loonie rallied, mainly due to the strength of the Chinese government's infrastructure-focused stimulus efforts, which saw increased demand for Canada's natural resources, such as raw materials and oil.

The value of the loonie again started to depreciate in 2014, due to the softening of the international oil markets. From a peak of 1.05 CAD to 1 USD, the loonie fell to a value of fewer than 70 cents per US dollar in early 2016. In the past six years, the loonie has again somewhat recovered, as it moves in lockstep with the price of oil and other commodities.

FAQ

The term loonie is derived from the Canadian coin, showing a common loon - a bird found throughout Canada.

The loonie is one of the major currency pairs, reflecting the global confidence in the country's management of its banking, financial, and economic system, as well as its political and military influence.

When the Canadian dollar (CAD) is high, we often witness a cycle of mutually beneficial spending that boosts both the economy and those living within it in no time. A strong CAD also means foreign visitors get a better exchange rate, which often encourages more people to visit a country, further boosting its economy.

This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.

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