Canadian Dollar

The Canadian dollar is the official currency of Canada and one of the most traded currencies in the world. Traders nickname it the loonie after the waterbird on the one-dollar coin, and it sits among the handful of currencies that turn over heavily every day in global markets.

Canada is a major exporter of oil, metals, lumber, and grain, so the loonie is widely treated as a commodity currency: its value tends to track the prices of the resources Canada sells abroad, especially crude oil.

The Bank of Canada, the country's central bank, issues the dollar and sets interest rates, targeting 2 percent inflation. It was an early adopter of formal inflation targeting in the 1990s, a framework much of the world later copied.

Canada has let its dollar float for most of the period since 1970, allowing markets to set the rate rather than pegging it. The decimal Canadian dollar itself dates back to 1858, when the Province of Canada aligned its coinage with the US dollar.

Because the loonie tracks commodities, it offers a quick read on global demand for raw materials, especially oil. When energy prices move sharply, the Canadian dollar often moves with them, which makes it useful context far beyond Canada.

The United States is Canada's dominant trading partner, so the US-Canada dollar rate is one of the most economically important exchange rates in North America. For investors holding Canadian stocks or funds, the loonie is part of the return when measured in US dollars.

Canada has generally kept inflation low and stable since adopting inflation targeting, with the Bank of Canada aiming for 2 percent. Like every currency, the loonie still loses purchasing power gradually, and faster during the inflation surge that followed 2021.

For Canadian savers the familiar logic applies: cash earning less than inflation is quietly shrinking in real terms. The commodity tilt adds a twist, since a strong resource cycle can lift the currency and cushion the cost of imports.

The US-Canada dollar rate is usually quoted as the number of Canadian dollars per US dollar. Over recent decades it has spent most of its time between roughly 1.20 and 1.45 Canadian dollars per US dollar, with brief visits to parity around 2007 and 2011 when commodity prices were high.

Because the two economies are so intertwined, the loonie often trades in a steadier range against the US dollar than many currencies do. The Canadian dollar is on one side of about 6 percent of global foreign exchange trades and makes up a small but real slice of central bank reserves.