Factors That Influence The USD to CAD Exchange Rate & Why Does It Matter The Most To The Canadians

If you want to exchange your currency for another currency, say from USD to CAD, you'd like to get the best deal in terms of the exchange rate to get the most out of your hard-earned money. Now, this isn't possible with banks as they're known to charge massively in the name of exchange rate besides imposing several other hidden fees in the process.

However, it's imperative to know that the exchange rate of USD to CAD depends upon a variety of factors. All these sharply impact the rise and fall of the exchange rate and all Canadians also show great enthusiasm towards this. Continue reading to know about these factors and why they matter to Canadians.

What Factors Affect The Exchange Rate Of USD To CAD?

Numerous Canadian policymakers and business analysts from around the world closely analyze the USD to CAD exchange rate as the same is a major driving force of the Canadian economy. Besides, it's significant to the global economy as well.

Thus, if you wish to exchange your currency in the future, you'd be familiar with the following factors as defined by the experts.

The first factor is the level of current and future expected interest rates in both countries. This is a vital factor because global investors prefer a currency with the highest interest return to hold their assets. In other words, a currency with better or higher interest rates will handily attract global investors. But, as this interest rate doesn't stay constant and alters every second, the investors assess both the current and future expected interest rates as illustrated in the yield curves of Canada & the US.

Investors also take into account the expected inflation while choosing the currency, though it's inferior to the currency with a higher interest rate.

The second factor to understand is the price of commodities, especially oil. Canada is a leading exporter of oil to the global market, especially the United States. Due to this, any fluctuation in its price influences the valuation of the Canadian dollars.

The third factor is the perceptions of overall risk. The American dollar is regarded as the "risk-heaven" for the investors. This is because whenever the global economy worsens, the investors get inclined toward the US dollar. This translates to the more the risk awareness, the higher the value of the US dollar and vice-versa. Contrary to this, the Canadian dollar is regarded as the "risk currency" since it tends to perform better when the global economy improves.

The stock market is likewise responsible for the shifts in the value of the Canadian dollar.

Last but not least, the geopolitical developments around both countries also control their respective currencies. While tensions with China enhance the value of the American dollar, the tensions in the Middle East do the same to the Canadian dollar.

Thus, these five are the major factors that govern the USD to CAD exchange rate.

Why Does All This Matter To The Canadians?

The following example depicts how the fluctuations in the USD to CAD exchange rate affect Canadians.

Suppose you're selling your goods to the US. Their rate will rise or fall in US dollars depending upon the rise or fall of the Canadian dollars. The same scenario is valid if you're a consumer purchasing something in US dollars as the value of your order will vary depending upon the value of the US dollar.

Conclusion

Since the USD to CAD conversion rate is imperative for the global economy besides being a driving force of the Canadian economy, you'd know on what factors it depends. This will likewise help you at the time of exchanging your currency for another currency, say USD to CAD.

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