AUD/CAD Trading Guide: How to Trade the AUDCAD FX Pair

When it comes to energy and natural resources, Australia and Canada play major roles in facilitating a significant portion of international trade in these essential commodities.

Therefore, anyone interested in trading the AUDCAD forex pair should have a deep understanding of the currency pair, including the strategies involved and the factors affecting its price movements.

Main Points:

• The AUDCAD currency pairing is made up of the Australian dollar as the base currency and the Canadian dollar as the quote currency.
• The AUD/CAD is classified as a cross or minor forex pair with relatively high liquidity.
• Although CFDs provide a convenient and adaptable way to trade AUD/CAD, the inherent risks should be carefully considered before taking a position.
• To calculate your net profit or loss on an AUDCAD CFD trade, multiply the number of pips moved by the contract size.

To begin with, how was the Australian dollar and the Canadian dollar created? Here is a brief history of both the Canadian dollar and the Australian Dollar.

The History of the AUDCAD (Australian dollar and Canadian dollar)

History of the Australian Dollar

Before the adoption of the Australian dollar, the Australian pound was in circulation as the currency of Australia since 1910. In 1937, the Banking Royal Commission under Prime Minister Lyon's regime, proposed that Australia introduce a decimal coinage scheme which was later supported and established by Prime Minister Menzies's regime in 1966.

History of the Canadian Dollar

Prior to the Canadian dollar (CAD), the Canadian pound held dominance as Canada's primary currency. This system began to shift in 1858 with the introduction of decimal coins, valued in cents. The unification of Canadian provinces in 1867, known as Confederation, further paved the way for a national currency. However, the official adoption of the Canadian dollar across all provinces finally took effect in 1871 by the Uniform Currency Act.

Understanding the Australian Dollar - Canadian Dollar Currency Pair

The Australian and Canadian economies thrive on commodity exports, particularly to the biggest economies in the world. As of 2023, Australia remains the largest trade partner to China, while Canada is the largest trade partner to the United States. Their major role in international trade has not only contributed to the turnover of the foreign exchange market but has also led to one of the most popular commodity forex pairs.

What Is the Australian Dollar?

• The Australian dollar serves as the official currency for domestic transactions within Australia and its external territories.
• The currency is represented by the symbols “AU$” or “$AU” and is shortened as ‘AUD’.
• It is popularly referred to as ‘Aussie’ among forex traders.
• It is classified as a commodity currency due to Australia’s major role in exports of livestock, energy, gold and other natural resources.
• As of 2023, the Aussie ranks 6th among the most traded currencies in the world.

What Is the Canadian Dollar?

• The Canadian dollar is the official currency used for everyday transactions in Canada.
• The currency is symbolised by ‘C$’ and abbreviated as ‘CAD’.
• The C$1 coin used in Canada is nicknamed the "Loonie" due to the image of a loon that appears on the back.
• It is often called a commodity currency due to Canada’s major role in crude oil exports.
• As of 2023, the loonie ranked 7th among the most traded currencies in the world.

Characteristics of the AUDCAD Currency Pair

• AUDCAD is a commodity-driven major currency pair.
• The currency pairing, ‘AUDCAD’ is classified as a cross or minor forex pair.
• It is recognised for its relatively high liquidity.
• AUDCAD has a volatility rating of 0.30%.
• As of 2024, the AUDCAD currency pair accounts for 0.76% of total FX turnover and ranks no.19 among the most traded currency pairs in the world.

What Is AUDCAD Trading?

The ticker symbol used to represent the Australian dollar to the Canadian dollar exchange rate is designated as ‘AUDCAD’ with AUD being the base currency and the CAD being the quote currency. As a whole, the pair shows how much of the base currency (AUD) will be needed to exchange for the quote currency (1 CAD). For example, AUDCAD at a rate of 0.555 means that you will need 0.555 AUD to purchase 1 CAD.

Therefore, as AUD/CAD exchange rates fluctuate due to factors affecting the value of the Australian dollar and the Canadian dollar, this creates opportunities for traders to buy and sell AUD/CAD based on their prediction of the exchange rate.

What Driving Factors Affect the AUD/CAD Exchange Rates?

When trading the Australian dollar (AUD) to the Canadian dollar (CAD), several factors can impact the AUDCAD exchange rate. These factors are provided as follows:

• Economic Performance: Both Australia and Canada are export-oriented economies and trade partners with the largest economies in the world. Australia is known for its mining, agricultural and natural gas exports while Canada is majorly known for crude oil exports. Therefore, any increase or decrease in export or commodity demand can influence the AUDCAD exchange rate.

• Economic Data: The Australian Statistics Bureau and Statistics Canada are the national agencies responsible for collating and releasing major economic news reports that can influence the changes in the AUDCAD exchange rate. Examples of macroeconomic news released by these institutions are balance of international trade reports, gross domestic product (GDP), oil inventory data, inflation, retail trade, consumer price index, tourism data, labour force survey, etc.

• Central Bank Policies: The Bank of Canada (BoC) and Reserve Bank of Australia (RBA) are the central banks of Canada and Australia respectively. They aim to stimulate growth and achieve economic objectives through monetary policy decisions like raising interest rates, lowering interest rates, or adopting dovish or hawkish policies. Differences in monetary policy stance between Australia and Canada's central banks can significantly impact the AUD to CAD exchange rates.

• Geopolitics and Sentiment The Australian dollar is heavily influenced by trade relations with Japan, China and the United States while Canada is primarily affected by its neighbouring country, the USA. As export-driven economies, uncertain global events like political elections, trade wars or unforeseen natural disasters can trigger investors' sentiment and impact the forex market including the AUDCAD exchange rate.

How to Trade the AUDCAD CFDs

The conventional practice in forex trading involves exchanging one currency for another. However, with forex CFDs, traders can speculate on the price movement of exchange rates with no requirement to own the underlying currencies.

Therefore, when trading AUDCAD CFDs, you're essentially trading on whether the value of the Aussie dollar (AUD) will rise or fall against the Canadian dollar (CAD), to potentially profit from price fluctuations in either direction, without needing to own either currency.

Key Concepts for Trading AUDCAD CFDs

Understanding the basic concept of trading AUDCAD CFDs is crucial for effective trading. They include the following.

1. Contract Size: This is the amount of base currency you control in a CFD trade.
   • A standard contract size means 100,000 units of the base currency.
   • A mini contract size means 10,000 units of the base currency.
   • A micro contract size means 1,000 units of the base currency.
   For example, when trading AUD/CAD CFDs with a mini contract size, you are trading $10,000 worth of Australian dollars.

2. Pip: A pip is the smallest price move of an exchange rate, which is typically 0.0001 for the AUDCAD pair. The value of a pip move is denominated in the quote currency (Canadian dollars).
   
   
   • For a micro contract size, each pip move is equivalent to 0.1 CAD.
   • For a mini contract size, each pip move is equivalent to 1 CAD.
   • For a standard contract size, each pip move is equivalent to 10 CAD.
   
   
3. Margin: Trading on margin allows you to control larger position sizes than your initial deposit would normally allow. For example, with a leverage ratio of 30:1, a $3,350 deposit allows you to open a $100,500 position in an AUD/CAD trade. This can amplify your losses as it may also amplify your potential returns.
   
   
4. Spread: This refers to the difference between the current buy rate (bid price) and the current sell rate (ask price) of a CFD pair. It's essentially the cost incurred whenever you open a buy or sell position on AUDCAD CFDs.
   
   
5. Swap: Swap or overnight funding fees refer to the cost associated with maintaining your AUD/CAD open positions rolled over to subsequent trading days until they are closed. As of May 2024, the overnight funding rate for AUD/CAD is ‎-0.0072% for short positions and -0.0041% for long positions.

Calculating Profits and Losses in AUD/CAD Trading

To calculate the profit or loss in an AUDCAD trade; simply multiply the contract size by the amount of pip move to find your net gain or loss.

Example of AUDCAD CFD Long position

If you buy AUDCAD with a standard contract size of 100,000 units and its price moves up 15 pips from 1.6142 to 1.6157. The profit realised will be (100,000 x +0.0015) = +$150

In contrast, If you buy AUDCAD with a standard contract size of 100,000 units and its price moves 10 pips in the opposite direction. The loss realised will be (100,000 x -0.0010) = -$100

Example of AUDCAD CFD Short position

If you sell AUDCAD with a standard contract size of 100,000 units and its price moves down 20 pips from 1.6140 to 1.6120. The profit realised will be (100,000 x +0.0020) = +$200

In contrast, if you sell AUDCAD with a standard contract size of 100,000 units and its price moves 10 pips up in the opposite direction. The loss realised will be (100,000 x -0.0010) = -$100

What Are the Trading Hours for AUDCAD CFDs?

Except for weekends, the foreign exchange market is open from Monday to Friday. Using the Plus500 App or WebTrader platform, traders can monitor AUD/CAD price movements in real-time and trade AUD/CAD CFDs. Trading for AUD/CAD is available continuously from Sunday at 10:00 PM CET to Friday at 10:00 PM CET.

* Please note that trading platform hours depend on the individual operator.

Steps to Buying and Selling AUDCAD CFDs with Plus500

To begin trading AUDCAD CFDs, you can take the following steps:

• Get Started: Open a trading account, either a real or demo account
• Log In: Access the Plus500 platform on desktop or mobile
• Funding: Deposit real capital to trade live accounts or virtual funds for demo trading.
• Explore The Platform: Familiarise yourself with the user-friendly platform including AUDCAD's current price, historical data and various trading tools.
• Find AUDCAD: Locate and select "AUDCAD" from the Forex - minors section.
• Analyse the Market: Conduct thorough analysis of the AUDCAD price to decide whether to buy (go long) or sell (go short).
• Manage Your Risk: Consider your risk management parameters on the position screen, including Take Profit (close at a profit) and Stop Loss (close at a loss).
• Execute the Trade: Click "Buy" or "Sell" to confirm your trade on the position screen.
• Monitor and Exit: Keep an eye on your trade, make adjustments as necessary, or exit the trade.

Practices for Trading AUDCAD

Besides having a well-defined AUDCAD forex trading strategy. Here are some helpful guidelines that may improve your AUDCAD trading.

1. Stay Ahead of Commodity Trends: Keeping track of commodity prices, especially mining products and OPEC meetings concerning crude oil can provide insights into the future direction of the AUDCAD price movement.
2. Implement Fundamental Analysis: It is crucial to keep an eye on the news and geopolitical events that can affect the AUDCAD price movement. Plus500 economic calendar can be used as a valuable tool to monitor these important data releases and geopolitical events that emerge from Australia and Canada.
3. Implement Technical Analysis: By utilising different chart types, technical tools and indicators, traders can analyse the price movement of AUDCAD and spot potential profitable opportunities.
4. Implement Risk Management: When trading AUDCAD, a well-defined exit strategy is key to managing unexpected market events that might result in excessive loss. Therefore, implementing automated orders like stop-loss orders, take-profit orders and trailing stop orders, can help to automatically close your open positions at profit or loss levels.

Conclusion

The AUD/CAD forex pair offers an opportunity for traders seeking exposure to price movements in commodity-driven currency pairs. However, the price of AUDCAD is also influenced by news and global/geopolitical events impacting its trading partner nations and major economies. Although classified as a minor currency pair because it does not constitute the US dollar, the Australian dollar and the Canadian dollar rank among the most traded currencies in the forex market offering high liquidity and potential trading opportunities to forex traders.

Frequently Asked Questions:

When Does AUDCAD Experience Increased Volatility?

AUDCAD is known to be most volatile from the overlapping session of New York and Sydney at 19:00 GMT till 04:30 (GMT) the next trading day. However, trading hours on the Plus500 platform may vary.

What Are Some AUD/CAD Trading Strategies?

You can apply various forex trading strategies to the AUD/CAD pair. These include momentum trading, which capitalises on the strength of existing trends, day trading, which involves buying and selling AUDCAD within the same trading day, and swing trading, which entails holding AUDCAD positions for several days to benefit from expected price swings.

Should Traders Consider AUD/CAD Trading?

Traders may consider the AUD/CAD currency pair due to its high liquidity and frequent trading opportunities. However, traders should consider applying effective risk management practices and trading strategies.