When Canadians hear that the Canadian dollar is worth less than the U.S. dollar, it usually sounds like bad news.
A headline might say:
“The Canadian dollar has fallen to 72 cents U.S.”
That can make it sound as though Canada has somehow lost nearly 30 per cent of its money. That is not what it means.
It simply means that one Canadian dollar buys about 72 cents in American currency. The exchange rate affects what Canadians pay for foreign products, but it also affects how affordable Canadian products appear to customers in other countries.
For an export-focused country such as Canada, a moderately lower dollar can provide a significant economic advantage.
The easiest way to understand it is to imagine Canada and the United States each running a lemonade stand.
The Canadian Lemonade Stand
Suppose you operate a lemonade stand in Ontario.
You sell a large case of Canadian lemonade for C$100. An American customer wants to buy it.
If the Canadian and U.S. dollars were equal, the American customer would pay US$100.
However, if one Canadian dollar is worth US$0.72, that same C$100 case would cost the American only about US$72.
You still receive your C$100, but the American customer sees a much lower price.
That makes your Canadian lemonade more attractive than an American case costing US$90 or US$100.
The American customer may buy more from you because Canada now appears to be having a sale.
That is the basic reason a lower Canadian dollar can help exporters.
Canada Sells a Lot to Other Countries
Canada produces far more than maple syrup and lumber. We export:
- Oil and natural gas
- Electricity
- Vehicles and auto parts
- Aircraft and aerospace components
- Wheat, canola, soybeans and other crops
- Beef, pork and seafood
- Potash and fertilizer
- Nickel, uranium, gold and other minerals
- Forestry products
- Machinery
- Computer software
- Engineering and professional services
- Film and television productions
Trade represents approximately two-thirds of Canada’s economy, while Canadian exports support nearly 3.3 million jobs — roughly one out of every six Canadian jobs, according to Global Affairs Canada’s State of Trade report.
That means the exchange rate is not just something that matters when a Canadian family visits Florida. It affects factories, farms, mines, forestry operations, transportation companies and millions of Canadian workers.
A Lower Dollar Makes Canadian Products More Competitive
“Competitive” means giving buyers a good reason to choose one product over another.
Price is not the only consideration. Quality, reliability, transportation costs and tariffs also matter. However, the exchange rate can give Canadian businesses a price advantage.
Consider two factories:
- A Canadian factory sells a part for C$1,000.
- An American factory sells a similar part for US$900.
At an exchange rate of US$0.72 per Canadian dollar, the Canadian part costs the American buyer about US$720.
The Canadian company does not necessarily have to reduce its Canadian price or cut its employees’ wages. The currency conversion creates much of the price advantage.
That can help the Canadian factory:
- Win more contracts
- Increase production
- Hire additional workers
- Add shifts
- Purchase more Canadian materials
- Invest in new machinery
- Keep operating during a slowdown
However, the Bank of Canada cautions that exchange rates are only one factor affecting exports. Foreign demand—especially the health of the U.S. economy—can be even more important. A lower dollar helps most when customers are healthy enough to continue buying. Bank of Canada research shows that exports can react differently depending on why the dollar declined.
Canadian Exporters May Earn More Canadian Dollars
Many international commodities are priced in U.S. dollars.
Suppose a Canadian company sells lumber, oil, wheat or minerals for US$1 million.
If the currencies were equal, that would convert into C$1 million.
At an exchange rate of US$0.72 per Canadian dollar, US$1 million converts into approximately C$1.39 million.
The company has not necessarily produced more or raised its U.S. price, but its U.S.-dollar revenue converts into more Canadian dollars.
Those additional Canadian dollars can help cover Canadian expenses such as:
- Employee wages
- Property taxes
- Equipment maintenance
- Transportation
- Canadian-made supplies
- Debt payments
- New investment
The benefit is reduced when the company must import machinery, parts, fuel or other supplies priced in U.S. dollars. The true gain depends on how much the company exports compared with how much it imports.
It Can Encourage Companies to Build Things in Canada
A lower Canadian dollar can make operating in Canada less expensive for a foreign business when its costs are measured in U.S. dollars, euros or other stronger currencies.
For example, an American company considering a new plant may compare the cost of:
- Canadian land
- Canadian wages
- Electricity
- Construction
- Engineering
- Production
- Research and development
When converted into U.S. dollars, those Canadian costs may appear lower.
This can encourage foreign investment and help Canada attract manufacturing, technology, mining, food-processing and film-production projects.
It does not guarantee investment. Companies also consider taxes, regulations, available workers, infrastructure, political stability and access to markets. Nevertheless, a favourable exchange rate can make Canada more attractive.
It Encourages Tourism in Canada
A lower Canadian dollar can make a Canadian vacation more affordable for Americans and other international travellers.
An American bringing US$1,000 to Canada could receive approximately C$1,390 at a hypothetical exchange rate of US$0.72.
That money may be spent at:
- Canadian hotels
- Restaurants
- Campgrounds
- Museums
- Tourist attractions
- Outfitters
- Gas stations
- Local shops
This is especially helpful to border communities and tourism regions such as Niagara Falls, Toronto, Vancouver, Banff, Montreal, Prince Edward Island and the Canadian North.
At the same time, a lower dollar makes U.S. vacations more expensive for Canadians. Some families may therefore vacation in Canada instead, keeping more of their spending inside the Canadian economy.
It Encourages Canadians to Buy Canadian
A lower dollar makes many imported products more expensive.
That is painful for consumers, but it can also change purchasing decisions.
A Canadian business might discover that imported U.S. materials have become too expensive and begin looking for a Canadian supplier. A family comparing Canadian and imported food may find that the Canadian product now offers better value.
This can create additional demand for Canadian:
- Food
- Building materials
- Furniture
- Machinery
- Clothing
- Vacation destinations
- Professional services
Economists call this import substitution. In plain language, it means replacing something purchased from another country with something produced at home.
That helps only when a suitable Canadian alternative exists. Canada cannot immediately replace every imported computer chip, medicine, machine or piece of industrial equipment.
Why Doesn’t Canada Just Push the Dollar Even Lower?
Because there is a point where the disadvantages become greater than the benefits.
Canada imports many products priced in U.S. dollars, including:
- Fresh produce during the winter
- Electronics
- Machinery and industrial equipment
- Vehicle parts
- Medications and medical equipment
- Clothing
- Packaged food
- Computer components
- Certain farm supplies
When the Canadian dollar declines, these products can cost more in Canadian dollars.
Statistics Canada has found that depreciation of the Canadian dollar can contribute to higher import prices, although the amount reaching consumers varies by product and economic conditions. Its examination of the 2021–2022 period found that currency depreciation was one of several factors behind rising import costs. Read the Statistics Canada analysis.
More expensive imports can contribute to inflation and raise costs for Canadian families and businesses.
A dollar that declines slowly and remains reasonably stable can assist exporters. A dollar that collapses quickly because investors have lost confidence in Canada would be a serious warning sign.
Who Usually Benefits From a Lower Canadian Dollar?
The likely winners include:
- Exporters selling Canadian products abroad
- Farmers selling internationally priced crops
- Forestry and mining operations
- Energy producers
- Canadian manufacturers
- Tourism operators
- Hotels and restaurants in tourist regions
- Canadian film and television production
- Workers in export-dependent industries
- Businesses earning U.S. dollars but paying many expenses in Canadian dollars
Who Usually Pays More?
The likely losers include:
- Canadians travelling in the United States
- Families purchasing imported products
- Businesses dependent on U.S. machinery or components
- Retailers importing inventory
- Companies carrying debt in U.S. dollars
- Snowbirds paying expenses in the United States
- Canadian sports teams paying players in U.S. dollars
- Consumers purchasing electronics, vehicles and certain foods
Some businesses can be both winners and losers.
A Canadian factory may benefit from increased U.S. sales while simultaneously paying more for an imported machine. Whether it comes out ahead depends on the balance between its export revenue and imported costs.
The United States Matters More Than Any Other Customer
The effect of the exchange rate is especially important because the United States remains Canada’s largest trading partner.
In 2024, the United States received 75.9 per cent of Canada’s merchandise exports and supplied 62.2 per cent of Canada’s merchandise imports, according to Statistics Canada.
This means even a modest change in the Canada–U.S. exchange rate can affect an enormous amount of trade.
A lower Canadian dollar can make Canadian products more attractive to the American market, but Canada must avoid relying on the exchange rate as its only advantage. Long-term success still requires productivity, reliable transportation, skilled workers, innovation and access to multiple international markets.
A Low Dollar Is Not a Report Card on Canada
People sometimes treat the exchange rate like a hockey score:
U.S. dollar: 1
Canadian dollar: 72 cents
Therefore, the United States is winning.
Currencies do not work that way.
Japan’s yen may require more than 100 yen to purchase one U.S. dollar, but that does not mean Japan is 100 times poorer than the United States.
The numerical value of a currency unit does not, by itself, measure the strength of an economy. What matters is what people earn, what things cost, how productive businesses are and how much the country produces.
The Bank of Canada allows the Canadian dollar to float rather than setting a fixed exchange rate. Its value changes according to demand for Canadian goods, services and financial assets, interest-rate differences, commodity prices and global economic conditions. This flexible exchange rate can act as a shock absorber when conditions change. The Bank of Canada explains the system here.
The Simple Answer
Imagine Canada is a large store selling products to the world.
When the Canadian dollar is moderately lower:
- Foreign shoppers see Canadian products as being on sale.
- Canadian exporters can attract more customers.
- U.S.-dollar sales convert into more Canadian dollars.
- Canada becomes a more affordable place to visit and invest.
- Imported products become more expensive.
- Canadians have more reason to buy products made at home.
That can increase production, investment and employment in Canada.
But if the dollar becomes too low, imported necessities become expensive and inflation can rise. That hurts families and businesses.
The Bottom Line
A lower Canadian dollar is neither completely good nor completely bad.
It is generally helpful to exporters, tourism operators and Canadian companies competing against foreign products. It is generally harmful to importers, U.S. travellers and consumers purchasing foreign goods.
For a country that exports enormous quantities of energy, food, minerals, lumber, vehicles and manufactured products, a moderately lower and stable Canadian dollar can be an economic advantage.
The ideal dollar is not necessarily one that equals the U.S. dollar. It is one that supports Canadian production and employment without making essential imports unaffordable.
In other words, Canadians may feel the low dollar when shopping in the United States—but Canadian workers may benefit when the United States shops in Canada.
Verified Sources
- Bank of Canada — Understanding Exchange Rates
- Bank of Canada — Exports and the Exchange Rate
- Statistics Canada — Canadian International Merchandise Trade
- Statistics Canada — Import Prices and Inflation in Canada
- Global Affairs Canada — Canada’s State of Trade
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