Canadian Dollar Drops as Yen Weakens: What It Means for Your Wallet

Key impact: Your grocery bill, gas prices, and electronics costs are likely going up. The Canadian dollar fell to 1.38 per U.S. dollar on October 26, 2023, making imported goods more expensive for you.

Here’s what happened and what you should do about it.

Why the Canadian dollar dropped

The Bank of Canada decided to hold its key interest rate at 5.0% on October 26. At the same time, the U.S. dollar strengthened against many currencies, including the Japanese yen, which hit a one-year low of 150.48 yen per dollar.

Japan’s ultra-loose monetary policy and rising U.S. Treasury yields pushed the dollar higher. Since the Canadian dollar is tied to global currency markets, it weakened too.

What this means for your wallet

A weaker loonie affects you in three main ways:

Higher prices on imported goods – Groceries, electronics, clothing, and gas become more expensive because businesses pass on currency costs to you.
More expensive U.S. travel – If you’re planning a vacation to the United States, your dollar buys less. A hotel room that cost $200 U.S. now costs about $276 Canadian (up from $270 before).
Cheaper Canadian exports – This is good news for Canadian manufacturers and farmers. Foreign buyers can buy our goods for less, which could boost some industries and jobs.

Who is affected

All Canadian consumers – You’ll pay more for imported food, electronics, and gas.
Travelers to the U.S. – Your vacation budget just got tighter.
Homeowners with variable-rate mortgages – The Bank of Canada left the door open to future rate hikes. If rates go up, your mortgage payments could rise.
Exporters and farmers – They benefit because their products are cheaper for foreign buyers.

What you should do

Monitor your spending on imported items – Check prices on groceries, electronics, and gas. Consider buying in bulk or switching to cheaper alternatives.
Lock in exchange rates for U.S. travel – If you’re planning a trip to the U.S. in the next few months, buy U.S. dollars now or use a prepaid travel card to lock in today’s rate.
Review your budget for variable-rate mortgages – If you have a variable-rate mortgage, prepare for possible rate increases. Talk to your bank about locking in a fixed rate if you’re worried.
Stay informed about Bank of Canada announcements – The next rate decision is in December. Further rate changes could affect your mortgage, credit card, and loan payments.

Bottom line

The Canadian dollar’s drop to 1.38 per U.S. dollar means higher prices on imported goods and more expensive U.S. travel. While exporters benefit, most Canadians will feel the pinch at the checkout counter. Monitor your spending, lock in exchange rates for planned travel, and prepare for possible mortgage rate increases. Stay tuned for the Bank of Canada’s next move in December.

Source: Asahi Shimbun, October 26, 2023