USD to CAD Currency Converter

The USD to CAD exchange rate is one of the most important figures in the Canadian economic landscape. It is also one of the most traded currency pairs globally. The US dollar is the world’s reserve currency so the value of the USD to CAD is a key indicator and driver of economic activity in Canada. The USD to CAD exchange rate changes every second as traders around the globe trade with one another.

What factors affect USD to CAD?

The exchange rate is watched closely by policy makers and businesses and analyzed by hundreds of analysts around the world.  USD to CAD forecasts generally attempt to determine the future of the exchange rate based on the factors that are known to affect the USD to CAD exchange rates.

The level of current and future expected interest rates in Canada and the US are important to the exchange rate.  Investors prefer to hold assets in the currency with the highest return.  As such, all else equal, the currency offering the higher interest rate is preferred and the relative difference in interest rates is watched closely.  Of course, interest rates are not static and investors take into account not just the current rates of interest but also expected future rates of interest, as reflected in the yield curves of the two countries.  The determination is further complicated by the fact that investors adjust for inflation expectations when comparing interest rates.  Nonetheless, the first principle is that investors prefer higher rates to lower rates when it comes to choosing currencies.  For example, if the Bank of Canada makes an announcement that hints at raising rates, the Canadian dollar will generally move up.

The price of commodities, especially oil, matters a lot to the Canadian dollar.  Since Canada is a huge net exporter of oil, an increase in the price of oil will drive up the demand for the Canadian dollar for those who want to buy our oil (most of which goes to the US).  So, the exchange rate is often very sensitive to changes in the price of oil, with the value of the Canadian dollar going up as oil prices go up and vice versa.  While other commodities matter to the Canadian dollar, none of them matter as much as the price of oil.

Perceptions of overall risk can impact the USD to CAD exchange rate.  The US dollar is a global “risk-haven”.  That means that when global economic sentiment deteriorates or the perceived risks to the global economy go up, investors tend to prefer the US dollar.  As such, when risk averseness increases, the US dollar goes up and vice versa.  Canada’s currency is known as a “risk currency”.  It tends to do better when risk recedes, and global sentiment improves.

The USD to CAD exchange rate is sometimes correlated with movements in stock prices.  This is because stocks tend to move up in risk-friendly environments that also move up the Canadian dollar’s value.

Geopolitical developments are an important consideration for the USD to CAD because they can impact the factors that affect exchange rate.  For example, rising tensions with China may be perceived as contributing to an increase in risk and therefore driving up the US dollar.  Alternatively, tensions in the Middle East that are seen as potentially disrupting the flow of oil sometimes drive up the price of oil and therefore the Canadian dollar.

Why does it matter so much?

The USD to CAD exchange rate touches every aspect of economic life in Canada.  Obviously, if you own US dollars or own assets (like stocks or real estate) that are US-based then their value in Canadian dollars is impacted by the changes in exchange rate.  And needless to say that if you are a company importing from or exporting to the US, then it very much matters to you how much the US dollar is worth in Canadian dollars because it will determine how much you will have to pay or get paid for your imports and exports.

For example, if you are a Canadian company selling into the US, as the Canadian dollar goes up in value, your goods and services become more expensive in US dollars and therefore less competitive.  Even if you are a consumer ordering something priced in US dollars, you care about the USD to CAD exchange rate because the more expensive the US dollar the more expensive your purchase.

But the impact of the level USD to CAD goes well beyond those direct effects.  Since the US dollar is the world’s reserve currency, much of the international trade, even outside of the US, is priced in US dollars.  So, a Canadian buying or selling something in Hong Kong or Germany is also impacted by the level of the USD to CAD.  Moreover, because of the importance of the exchange rate, policy makers and the Bank of Canada closely monitor the exchange rate and even on occasion attempt to influence it.  For example, the Bank of Canada’s decision to raise or lower interest rates will always involve considerations with respect to the level of the exchange rate.