The Canadian dollar (CAD) is one of the world’s most widely traded, respected, and popular currencies, playing a key role in international finance and global markets.
As the official currency of Canada (with Canada's resource-driven economy being one of the world’s largest) the CAD is backed by strong fiscal management, a stable political system, and abundant natural resources. Often referred to as a “commodity currency” due to Canada’s significant exports of oil, timber, and minerals, the Canadian dollar is closely tied to global economic trends and commodity price movements.
Its popularity among forex traders and central banks stems from its liquidity, relative stability, and importance in North American trade, particularly given Canada’s close economic ties with the United States. Whether used for international business transactions, reserve holdings, or currency trading, the Canadian dollar remains a vital component of the global financial system.
Historical context of Canadian dollar
The Canadian dollar has a fascinating historical trajectory that mirrors the political and economic evolution of Canada itself.
Prior to Confederation in 1867, the regions that would become Canada used a mix of currencies, including British pound sterling, Spanish dollars, and the US dollar.
However, in 1858, the Province of Canada introduced its own decimalised currency, the Canadian dollar, replacing the Canadian pound at a rate of 1 pound = 4.866 dollars. This move aligned Canada with the U.S. dollar system, making trade with its southern neighbour more seamless.
The Canadian pound
Before the adoption of the Canadian dollar, the official currency in much of what is now Canada was the Canadian pound. Introduced in the early 19th century, the Canadian pound was based on the British monetary system and was subdivided into shillings and pence, mirroring the structure of the British pound sterling at the time. It was used in various British colonies in North America, including Upper and Lower Canada (modern-day Ontario and Quebec).
However, the use of the pound created complications in trade, especially with the United States, which used a decimal-based dollar system. To simplify commerce and align more closely with its largest trading partner, Canada decided to adopt a decimal currency. In 1858, the Canadian dollar officially replaced the Canadian pound, marking a major shift toward a modern, unified monetary system.
The gold standard
During the 19th and early 20th centuries, Canada operated under various monetary standards, including the gold standard and a fixed exchange rate system. The country abandoned the gold standard in 1931 during the Great Depression, and in 1950, the Canadian dollar was allowed to float freely for the first time, responding to market forces.
Modern day CAD - Canadian dollar
After a brief return to a fixed exchange rate in the early 1960s, the currency has floated freely since 1970. Today, the Canadian dollar is known for its relative stability, prudent fiscal management, and strong backing by natural resource exports, particularly oil, timber, and minerals.
Currency symbol
The Canadian dollar is symbolised by the dollar sign $, like other dollar-based currencies.
To distinguish it from other dollars (such as the US, Australian, or New Zealand dollars) it is often prefixed with a “C”, written as C$. This helps avoid confusion in international contexts and trading platforms, especially in forex markets.
ISO code
The ISO currency code for the Canadian dollar is CAD, as designated by the International Organization for Standardization.
This three-letter code is used globally in banking, commerce, and forex trading to identify the currency. In forex quotes, CAD is typically paired with other major currencies such as USD (US dollar), EUR (euro), and JPY (Japanese yen).
Central bank
The Bank of Canada (BoC), established in 1935, is the country’s central bank and the sole issuer of Canadian dollar bank notes.
The Bank of Canada is responsible for formulating monetary policy, managing inflation, promoting financial system stability, and issuing the Canadian dollar in both physical and digital forms. As part of its mandate, the Bank of Canada targets an inflation rate of 2%, the midpoint of a 1–3% control range, which it aims to achieve through interest rate adjustments and other policy tools.
The Bank of Canada operates independently from the federal government, though it collaborates closely with government agencies on fiscal policy and financial regulation. It plays a key role in influencing the strength and stability of the Canadian dollar by responding to economic indicators such as employment data, GDP growth, and commodity price fluctuations. The Bank of Canada also participates in international forums and engages in open market operations to manage the money supply and keep the currency competitive.
Read more about the Bank of Canada's interest rate decisions here - When is the next Bank of Canada rate announcement?
Denominations
Canadian currency is issued in both coins and polymer bank notes.
The current banknote denominations are $5, $10, $20, $50, and $100, each featuring a prominent Canadian figure or theme.
For example, the $5 note depicts astronaut and former politician Sir Wilfrid Laurier, while the $20 note prominently features Queen Elizabeth II. Since 2011, all banknotes have been printed on polymer rather than paper, enhancing their durability, security, and resistance to counterfeiting.
The $1 and $2 banknotes were discontinued in 1989 and 1996 respectively, and replaced by coins. These changes helped reduce costs and increase the lifespan of currency.
Currency subunit
Like many modern decimal currencies, the Canadian dollar is divided into 100 smaller units known as cents.
Prior to 2013, the penny (1 cent coin) was part of everyday currency use, but it was officially withdrawn from circulation due to high production costs that exceeded its face value. Transactions are now rounded to the nearest five cents in cash purchases, although electronic transactions continue to calculate amounts to the exact cent.
Despite the penny’s withdrawal, the cent remains the official subunit in accounting and pricing structures.
Other common Canadian coin denominations include the nickel (5 cents), dime (10 cents), quarter (25 cents), the $1 coin, and the $2 dollar coin, all of which remain widely used.
A 50-cent coin is also legal tender, but it is rarely used in daily transactions and primarily holds value for collectors.
Official name and common nicknames
The official name of the currency is the Canadian dollar, but it is also widely referred to by a variety of nicknames that have become ingrained in Canadian culture.
The most commonly used slang term is buck, a term shared with the U.S. dollar. The $1 coin is affectionately known as the loonie, a nickname derived from the image of a common loon (a national bird of Canada) on one side of the coin. When the $2 coin was introduced in 1996, Canadians playfully named it the toonie, a combination of “two” and “loonie.”
These nicknames are used not only in everyday speech but also in media, advertising, and even official communications. For instance, financial news outlets often refer to the Canadian dollar as "the loonie" when discussing its value in global markets.
Common CAD forex trading pairs
The Canadian dollar plays a significant role in global forex markets and is considered one of the world’s major reserve currencies. It is especially popular among traders due to its liquidity, economic stability, and close link to commodity markets—particularly crude oil, natural gas, and lumber. Because of these connections, the CAD is often referred to as a "commodity currency."
Some of the most frequently traded CAD forex pairs include:
- USD/CAD – US dollar vs Canadian dollar
- EUR/CAD – Euro vs Canadian dollar
- CAD/JPY – Canadian dollar vs Japanese yen
- GBP/CAD – British pound sterling vs Canadian dollar
- AUD/CAD – Australian dollar vs Canadian dollar
Among these, USD/CAD is by far the most liquid and widely traded, commonly referred to as "the loonie pair" by forex traders.
The currency pair is sensitive to US-Canada trade relations, interest rate differentials between the Federal Reserve and Bank of Canada, and fluctuations in oil prices, given the Canadian economy’s status as a major oil exporter. Traders often monitor this pair to gauge risk sentiment and hedge commodity exposure.
