USD to CAD and Why it Matters to You

USD to CAD and Why it Matters to You USD to CAD. What is it? You hear the term everywhere in Canada. You hear it mentioned on TV, on the radio. You see it online and in the newspapers. There are even Facebook groups dedicated to it. Why do people care so much about it? People write reports about it and debate it passionately and care a lot about where it is and where it is going in the future. It seems to change all the time. What in the world is it and why should you care?

The term USD to CAD is generally denotes the “US dollar to Canadian dollar exchange rate”. It is the price of 1 US dollar in Canadian dollars. For example, a USD to CAD rate of 1.27 means that each US dollar is worth 1.27 Canadian dollars. It also means that 1 Canadian dollar is worth 0.79 in US dollars.

This last number is sometimes known as the inverse rate because it is equal to the inverse of USD to CAD (ie: 1/1.27 = 0.79).

The USD to CAD exchange rate (like all other exchange rates) changes from second to second as buyers sellers and speculators transact with one another. The Bank of Canada provides a daily exchange rate lookup as well as historical USD to CAD rates but does not provide “live” rates that reflect minute to minute changes during the day. You can see the live USD to CAD rates quotes on sites like Interchange Financial. While the rate changes all the time, on a daily basis the changes tend to be within a penny.

While larger changes can and do happen, it would be rare to see a day with a larger than one penny change more than once a week.

While the daily changes in USD to CAD are often small, they can add up in many ways to make an impact to people doing USD to CAD exchanges. For example, even a one penny change means that if you are exchanging 10,000, you will receive a hundred dollars more (or less). Also, the changes can accumulate over several days or months to add up to larger amounts. For example, during one three month period recently the Canadian dollar moved by 20 pennies. That same 10,000 exchange would now get 2000 more (or less depending on what you are exchanging).

So, that’s it. That’s what all the hoopla is about when it comes to USD to CAD. It is a simple concept but it is also very important to Canadian society and economy. Why is it important? It is important because Canada has a very open economy and interaction with people and businesses outside of Canada is very normal. USD to CAD can impact everything from the smallest transaction involving someone ordering shampoo on Amazon to someone buying property in Arizona to an immigrant moving money from the USA to Canada to a Canadian company paying bills in California to a Michigan company buying steel in Canada to an investor selling his stocks in US companies.

Let us consider just one of those examples. Take a sophisticated Canadian investor who holds stock in Apple. The investor has done well and the stock is up 20% over his holding period. He is ready to sell it and cash out his investment to purchase a new house in Canada. After he sells his Apple stock, he will hold a bunch of US dollars in his brokerage account. He needs to convert that amount to Canadian dollars. What if the USD to CAD rate moved down 30% during his holding period? Now, in Canadian dollars, his return is actually negative 10%. In Canadian dollar terms, he has lost money. That house he thought he could buy with his investment? It is no longer available to him.

At this point, you might be thinking that USD to CAD matters only to large transactions. Not true. Let’s say you are buying a new bike online. The seller is located in the US. When you first see the bike you want the USD to CAD rate is 1.27. When you go back in a month, the USD to CAD rate has moved to 1.34. Well, that bike just got 6% more expensive for you.

What if you never buy anything from outside of Canada? USD to CAD still impacts you. Why? Because just about everything you buy in Canada has some sort of input that is priced in US dollars. Oranges at the supermarket? They are from California. Car made in Windsor? Most of the parts are from the US. T-shirt made in China at Walmart? The importer paid in US dollars to buy it. Wine made in BC? The gasoline used to transport it is priced in US dollars. In general, when USD to CAD goes up, everything gets more expensive.

Given its importance to nearly everything in Canada, it is perhaps not surprising that The Bank of Canada and the Government of Canada watch the USD to CAD rate very closely. They like to say that the rate is set by markets, which is true, but it really impacts everything so they follow it closely and even sometimes try to influence it. If USD to CAD gets too low then Canadian companies have trouble competing in international markets because their exports become too expensive. On the other hand, if it gets too high then things get very expensive for Canadians living at home.

So, USD to CAD is a simple term and a simple concept but it is hugely important to everyone in Canada.

It is no wonder then that you hear it everywhere and so many people get worked up about it. It really matters to everything that we do in Canada.

https://www.interchangefinancial.com/usd-to-cad/