Why is Canadian currency much more expensive than the US currency?
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Canadian Dollar is not that much expensive although it has now a higher value than the U.S. dollar. Maybe it is because the political issues in the U.S. and about the house loans… As we all know, United States of America is not also doing that well this year and it even turned its GDP growth rate to negative having a high population growth rate. Both emerging and developed markets are also beating the performance of the of the U.S. market. As far as I know, U.S. dollar is dubbed as the worst performing currency for two years already in North America.
Its not…
Canada is a big trading partner of the U.S. and we import far more lumber and oil from Canada than we export to it. This creates an excess demand for Canadian dollars and a corresponding excess supply of U.S. dollars. Therefore Canadian dollar rises in value due to shifting out of the demand curve.
Three reasons:
Interest rates are relatively higher in Can. If the currencies were at parity, arbitreugers would sell US dollars and buy Can dollars to earn the higher interest rate. This action would cause the US dollar to fall relative to the Can dollar.
The next reason is that there may be more/better investment opportunities in Can. This, again, causes investors to sell US dollars and buy Can dollars to make investments in Can.
Finally, the US imports more from Can than it exports to Can. Thus, US importers have to be net sellers of US dollars / buyers of Can dollars.