How to trade Canadian Dollar ETF

The Canadian Dollar (CAD) locally referred to as the loonie has been going strong against the USD for some time. The Canadian Dollar is usually referred to as a commodity currency as the Canadian economy is largely commodity export oriented and draws most of its GDP from there. As prices of commodities like gold, oil and agricultural raw materials have been steadily climbing high, the Canadian Dollar has followed suit. In April 2011, the Canadian Dollar pared its exchange with the USD mainly buoyed by the growing demand for commodities from recovering global economies, recovering local job market and acceptable debt-to-income ratio of the country.

Trading the Canadian Dollar ETF

The Canadian economy is on the upswing now and has been largely insulated from the global economic meltdown. However, the forex rate of the Canadian Dollar gets affected due to following factors –

  • The capital flow between the US and Canada and other G7 economies
  • Inflation within the country as well as in economies with trade relationships
  • Real interest rates within the country
  • Any changes in the fiscal policy that may affect the local economy

Canada’s economy grew the fastest in 2010 owing to low interest rates in the country. As the demand for commodities is not likely to slacken in 2011, the Canadian Dollar will continue to trade strongly against the USD in 2011. The outlook for the loonie also seems to be positive as the economy is recovering faster than its counterparts in G7.

Canadian Dollar ETFs: Easier than Futures to Trade

During the initial months of 2011, the Canadian Dollar ETF has been one of the top performing currency funds. However, as the new government takes charge, interest rates may move northwards, significantly impacting the local economy. It thus is advisable to stay invested through the Canadian Dollar ETF rather than in futures as the exposure to volatility would be bare minimum. As online ETF brokers have very flexible investing options and low fees, it is best suited for investors who wish to ride the growth wave and disembark when the currency starts trading weak. FXC is the best option available to ETF investors.

As global economies are recovering and tighter fiscal measures being adopted across the economies, it always is prudent to adopt a cautious approach. ETFs not only reduce the exposure to volatility but also help you to track your investments easily.