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Canadian American Currency Converter – Enough to Judge Real Values?

A currency exchange rate is a relative price: the amount of one currency you have to part with, to get a specified amount of another currency. So when simply looking at a Canadian American Currency Exchange converter, you’re not really determining whether the price of the Canadian dollar has gone up, or whether the value of the American dollar has gone down.

What does the Canadian American Currency Converter tell you?

A simple Canadian American Currency converter won’t answer this for you. To get at the real value of each currency, you must examine their relationships with other foreign currencies.

If we take a look at how the U.S. and Canadian Dollars have done against other major currencies such as the Euro or Japanese, we’ll see whether the Canadian-American exchange rate has changed because the Canadian Dollar has grown in value, or whether the American Dollar has fallen.

The concept is simple: if we see the Canadian Dollar has not moved much against the Euro, while the U.S. Dollar has dropped significantly, we can be pretty sure that the changes in the Canadian-American exchange rate are caused mainly by a devalued American dollar. On the other hand, if we see that the U.S. Dollar has remained steady against the Euro while the Canadian Dollar has gone up, we’ll know that changes in the Canadian-American exchange rate were primarily caused by a strengthening Canadian Dollar. This will help put our Canadian American Currency Converter results in perspective.

Canadian Amercian Currency Converter, and other foreign currencies

So let’s compare both currencies against each other – and five other important currencies: the GB Pound, the Japanese Yen, the Euro, the South Korean Won, and the Mexican Peso – Currencies not found on the Canadian American currency converter. We will look at how the exchange rates have changed between two dates: May 1, 2004 and October 27, 2004. First, let’s look at the U.S. Dollar.

U.S. Dollar vs. Six Foreign Currencies

  1. American Dollar vs Canadian Dollar: Down 10.58%
  2. American Dollar vs Euro: Down 5.69%
  3. American Dollar vs British Pound: Down 2.74%
  4. American Dollar vs Japanese Yen: Down 3.66%
  5. American Dollar vs South Korean Won: Down 6.21%
  6. American Dollar vs Mexican Peso: Up 0.88%

From these figures, we see the U.S. Dollar has fallen in value against 5 of the 6 other currencies. It has only risen slightly against the Mexican Peso. But the American Dollar has fallen the most against the Canadian Dollar. Simply looking at a Canadian American currency converter wouldn’t have told you this. If you’re aware of the relationship between arbitrage and exchange rates, you know this should mean the Canadian Dollar will have risen versus the other currencies. And indeed, the statistics bear this out:

Canadian Dollar vs. Six Foreign Currencies

  1. Canadian Dollar vs U.S. Dollar: Up 11.88%
  2. Canadian Dollar vs Euro: Up 5.52%
  3. Canadian Dollar vs British Pound: Up 8.80%
  4. Canadian Dollar vs Japanese Yen: Up 7.79%
  5. Canadian Dollar vs South Korean Won: Up 7.75%
  6. Canadian Dollar vs Mexican Peso: Up 12.86%

The mighty Canadian Dollar has risen between 5% and 13% in value over each of these major currencies. That’s a pretty healthy ascent in the last few months. Again, notice that (other than the Mexican Peso) the Canadian Dollar has gained more from the U.S. Dollar than from any other currency. Clearly, the huge jump in the Canadian Dollar relative to the American Dollar in this six month period, is due to both the Canadian Dollar appreciating on world foreign exchange markets and the U.S. Dollar falling in value. A fact we couldn’t have gleaned simply by looking at a Canadian American Currency Converter.