All you need to know about EURCAD
In FOREX market the EURCAD symbol is used to determine the exchange rate between the Euro currency and the Canadian Dollar. In other words, the exchange rate of EURCAD show us how many Canadian Dollars (also known as loonie) we need in order to but 1 Euro in exchange market.
For example – the moment this article is written-this specific exchange rate is approximately 1,30, so we need 1,30 Canadian Dollars so as to buy 1 Euro.
So, between these currencies, the Euro is the expensive, while the Canadian dollar the cheap one. I remind you, that like the other currency pairs in FOREX market, the first currency used in EURCAD exchange rate (the Euro in this case) is called ‘base currency’ and the second one ‘reference currency’.
EURCAD: The exchange rate characteristics
In spite of what most possibly believe, EURCAD is one of the least popular currency pair in the FOREX market with low trading volume although Eurozone plays an important role in global economy (2021 GDP:14,5 trillions including its 19 members) and Canada is in the 9th place with a GDP of 1,64 trillions.
EURCAD (unlike CADJPY and USDCAD) is not considered to be a safe-haven exchange rate, which means that it is not the first trading option leading to loss protection during crises. That’s because Euro has endured a lot of pitches due to the Eurozone members’ fiscal problems.
Eurozone importance
We do not need to make further analysis about Eurozone importance-and the Euro as a common currency- in the market fields, because it is about the definition of an economy developing towards all directions and sectors (high technology, services, industrial production, agriculture, tourism, energy, etc) with lower or higher rate over the last decades.However, Eurozone, as we said above, consists of different countries and each one has a different fiscal and economic policy approach. Therefore, the tracking of repercussions of these different policies to the common currency turns to be a difficult process. Moreover, the ingrained disparity in Europe between the rich north and poor south leads frequently to political disputes at national level against the background of economic advancements.
Of course Germany is the biggest Eurozone component as it gets involved in the approximately 20% of the GDP followed by France whose GDP participation is about 16%. Thus their financial figures and applied policies (including the decisive contribution of the ECB) determine the euro progression to a large extent.
The Canadian’s economy export character.
On the other side Canada has fully taken advantage of the population(barely 38,5 millions based on the 2020 census)-acreage(10 millions square km) proportion being the second largest country in the world (!) and at the same time its big export power regarding commodities such as timber , precious stones, minerals, oil, etc) and the services’ boom.
The Canadian dollar is the country’s official currency since 1861 when replaced the Canadian pound used since 1841.Before 1841, as a British colony Canada’s official currency was the British pound.It should also be pointed out that the country has a remarkable living standard and nowadays is widely recognized as one of the most peaceful and multicultural countries in the world.
The basic regulators: ECB and Bank of Canada.
As already mentioned above ECB defines the Eurozone’s monetary policy. That’s why ECB is the basic regulator of the exchange rate depending the decisions it takes in order to preserve the economic consistency in its regulatory area.
The ECB’s expressed – and great- goal is to maintain the annual inflation levels between 0% and 2%. However, this goal was diverged a lot due to the energy crisis that broke out the last 2 years (and the potential danger of a recession) leading to a major decline of euro compared to other strong currencies.
As far as regards the Canadian dollar, Bank of Canada(BoC) has almost the same goal, namely keeping inflation at the level of 2%.
What affects the EURCAD exchange rate?
Canada is an eminent productive and exporting economy so both demand and commodity (mainly metals and oil)price fluctuations affect its currency.
The experience of the last years with regard to the 2010 economic crisis and the 2020 Covid outbreak, many analysts puzzled over Canadian dollar’s consistency, because it was not affected, as expected by the sharp demand decline, although the Canadian economy was focused on exports.
Therefore a lot of people have revised and overhauled the CAD importance over the next years.Also, let’s not forget that USA is the largest trading partner and economy in the world and borders Canada to the north.
Geopolitical tensions
Euro is susceptible not only due to its large magnitude economy and when Eurozone faces problems with the implementation of the monetary policy but also because of geopolitical tensions as a regulatory factor leading to geopolitical problems observed quite often -not within the limits of the Eurozone and European Union but in its core-causing turmoil.
The most typical and recent event, of course, being the Russian invasion in Ukraine in February 2022.
EURCAD historical background
From the distant 1993, EURCAD’s extreme maximum price was 1,93 (March 1995) which was approached again in October 1998 reaching 1,92. On the other hand, the lowest prices are detected in the area of 1,21-1,25 (the lowest one in August 2012). Nowadays (summer 2022), CAD for a long period follows a pattern of decrease which may lead to its minimum price again.
Demetrios
forexart73@gmail.com
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