CADvUSD

I’m writing this on the afternoon of Sunday, January 5th. The CAD/USD is $1.45.

As mentioned last week, over the Christmas and New Year break, I was told by countless friends and family that the Canadian dollar was going to get weaker and the US dollar was going to get a lot stronger. They told me this with astounding conviction.

Whenever I hear these kinds of arguments, I so badly want to reply with: “if it was a certainty, wouldn’t it already be a lot higher?” That response is appropriate anytime someone makes a claim with that level of conviction, by the way. If xyz is certain to go up or down by a ‘known’ amount because of whatever event, then shouldn’t it have already gone up or down by that amount?

I don’t answer that way anymore, though, because I don’t like arguing about the future. I did enough of that when I was younger and learned the hard way how much time that wastes. Instead, I listen. I might learn something after all.

According to the people I spoke to, the US dollar is going to get a lot stronger relative to the Canadian dollar because of the next US President. Why? Tariffs, of course. Tariffs might seem like they could strengthen the USD by promoting domestic goods, but exchange rates are influenced by forces much broader than trade policy.

Investopedia outlines five key drivers of exchange rates (link here): differences in inflation rates, interest rates, current account deficits, public debt, and terms of trade. These five factors drive exchange rates far more than any single policy or leader ever could.

Politicians might love talking about exchange rates, but their actual influence is limited. Their real focus is on winning votes and shaping narratives - not controlling markets.

The next time someone tells you they know where the CAD or USD is headed, remember that currencies don’t move on conviction or headlines or what politicians say. They move on fundamentals. And anyone claiming to know the future? They’re guessing, just like the rest of us.