As of this post the Canadian dollar is depreciating versus the American dollar. The major contributing factor to this downward pressure is due to the interest rate announcement expected by the Bank of Canada.

Why does the Canadian dollar go down when interest rates are reported to be staying the same or declining? To put it in very simple terms, foreign exchange is about supply and demand of foreign currency, to hold foreign currency you need to buy some supply. A form of that supply would include government bonds or T-bills which have a return. If the interest rate is going down or staying the same then the return from those short term investments stays the same or is going to decline in future value, which means there will be less demand to hold your currency. Less demand or the selling of your supply (it’s not worth as much) puts downward pressure on the currency therefore depreciating it versus, in this case, the American dollar.

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