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USD/CAD Currency Cross

Factors that impact the USD/CAD FX rate

What is the US to CAD Currency Cross?

The USD/CAD currency pair represents the quoted rate for exchanging US to CAD, or, how many Canadian dollars one receives for every US dollar.  For example, a USD/CAD rate of 1.25 means 1 US dollar is equivalent to 1.25 Canadian dollars – or conversely stated, that it takes 1.25 Canadian dollars to equal 1 US dollar.  This forex guide will review factors that impact both currencies and their exchange rates.

 

Factors that affect the US to CAD exchange rate

The USD/CAD exchange rate is affected by economic and political forces on both sides of the border. Below we will analyze factors that commonly impact each country.

Factors impacting the USD:

  • Interest rates set by the Federal Reserve (the “Fed”)
  • Gross Domestic Product (GDP) growth rates
  • Unemployment rate
  • Money supply and the printing of money by the Fed
  • International trade agreements, tariffs, and duties
  • Balance of payments
  • Budget deficit and total national debt
  • Political events
  • Entitlements (Social Security and Medicare)
  • Consumer savings and household income rates
  • And many more factors (read about 50 different factors)

Factors impacting the CAD:

  • Commodity prices (oil, potash, zinc, and others)
  • Bank of Canada (BoC) interest rates
  • Employment rate and job creation
  • Budget deficit and national debt levels
  • Politics and international policies
  • The quality of Canadian and US relations
  • Read more: history of the Canadian dollar

 

History of the US to CAD Exchange Rate

Below is a chart of the US to CAD exchange rate over the last 10 years, from 2008 to 2018.  As you will notice, the FX rate has been anywhere between 0.94 and 1.46 over that time period.

The two currencies have been relatively close to each other in value over the past decade. Interestingly during this time period, they have flipped back and forth between which has been the stronger currency. But it was only in the period of 2011-2012 that the Canadian dollar was actually worth more than the US dollar (when the USD/CAD exchange rate briefly dipped below 1.00). From late 2008 – when the full impact of the 2008 financial crisis was hitting the US – to mid 2011, the Canadian dollar was strengthening against the US dollar. Since 2011-2012, however, the USD has shown renewed strength and increased in value relative to the CAD, as shown by the strong uptrend in USD/CAD that drove the exchange rate substantially higher into mid 2015. During that same time period, the US dollar was generally in an uptrend against most of the other major currencies as well.

 

US to CAD 10 year FX graph
Source: xe.com

 

Impacts of US to CAD on Business and Lifestyle

Since Canada and the US are neighboring countries, the exchange rate has a big impact on business, tourism, and lifestyles.

When the US dollar is stronger, there is some migration of manufacturing and labor outsourcing to Canada in an effort to lower costs. Additionally, there is more importation of goods from Canada into the US, and Americans will be more likely to go on vacation or buy properly in Canada, as it is comparatively cheaper.

The opposite is true when the Canadian dollar is stronger.  Firms will tend to import more from the US into Canada and Canadians will be more likely to vacation and buy real estate In America.

 

Additional Resources

Thank you for reading this guide on the US to CAD exchange rate. CFI is the global provider of the Financial Modeling & Valuation Analyst certification, a leading accreditation for financial analysts.  To continue learning and advancing your career in corporate finance, these additional resources will be helpful:

  • 5-Step Guide to Winning Forex Trading
  • Forex Trading; How to Trade the Forex Market
  • All Economics Articles
  • Financial Modeling Guide

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