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Why is USD/CAD Going Up?

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Why is USD/CAD Going Up?

Dec 19, 2022
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Why is USD/CAD Going Up?

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When currencies inflate, people need to trade their money for something that goes up by more than inflation, or they will lose purchasing power. People in North America hedge against inflation by spending their money on stocks or items they think will hold value.

However, suppose you're in a foreign country, and your inflation rate is 180% (like in Lebanon). In that case, you must buy another currency inflating less than yours because anything valued in your currency is worthless by tomorrow. You know you will still lose money from inflation if you buy USD, but 10% inflation is much better than 180%.

In Canada, interest rates are 4.25%, and in the US, they are 4.50%. This means people are incentivized to park their money in USD more. Not only that, but the central bank in Canada is losing money now for the first time. People are not confident in the Canadian dollar. This lack of confidence, with interest rates lower than the USD and the USD being pegged to oil, leads to a higher USD/CAD ratio. 

When inflation is high in the US, other countries lose more because they are still on the USD standard pegged to oil. In Lebanon, they all have to switch to USD and accept the loss of inflation on the USD since their currency is worthless now. 

The Lebanon issue has gotten so bad that police aren’t arresting citizens for robbing banks every time anymore because they understand.

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Why is USD/CAD Going Up?

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