When Canadians invest in US stocks, they are not only betting on the performance of companies like Apple, Microsoft, or Tesla, they are also exposed to movements in the foreign exchange (FX) market. Every share purchase or dividend payment denominated in US dollars (USD) must ultimately be converted into Canadian dollars (CAD). This makes the CAD/USD exchange rate a critical but often overlooked factor in portfolio returns. 

In this guide, we’ll explore how the CAD to USD exchange rate impacts Canadian investors, why it matters for stock market gains, and what strategies are available to manage currency risk. 

Why Canadian investors look to the US market? 

Canada’s domestic stock market is relatively small and concentrated. Roughly 70% of the S&P/TSX Composite Index is tied to just three sectors: financials, energy, and materials. While these industries are important, they don’t provide the same exposure to technology, healthcare, or consumer brands that dominate the global economy. 

For diversification and access to growth sectors, Canadians often look south of the border to the New York Stock Exchange (NYSE) and NASDAQ. US markets are home to the world’s largest and most liquid stocks. Buying these shares, however, means dealing with US dollars. 

The basics of CAD to USD conversion

Any time a Canadian investor wants to purchase US securities, CAD must be exchanged for USD. The rate at which this happens depends on:

The mid-market rate – the true exchange rate you see quoted on financial news or Google.

The spread/markup – the margin applied by banks and brokers, which increases the cost of conversion.

Transaction fees – flat fees or percentages charged on top of the exchange. 

Even small differences in conversion costs can eat into long-term investment returns, especially for those who make frequent trades or hold significant US positions. 

How exchange rate fluctuations affect your returns? 

Currency moves can be as impactful as market performance itself. Consider this example: 

• A Canadian buys USD 10,000 worth of Apple shares when the exchange rate is 1 CAD = 0.75 USD.
• This costs CAD 13,333.
• Suppose Apple’s stock rises 10% in USD terms, making the investment worth USD 11,000.

Now, if the CAD has strengthened to 1 CAD = 0.80 USD at the time of sale: 

• Converting USD 11,000 back yields CAD 13,750.
• That’s only a 3% return in CAD, not 10%.

If instead the CAD weakened to 1 CAD = 0.70 USD: 

• USD 11,000 converts to CAD 15,714.
• That’s a 17.9% return in CAD, far above the US stock performance.

In short, the exchange rate can either erode or amplify returns. Canadian investors must therefore account for both stock performance and currency movements. 

Key drivers of the CAD to USD exchange rate 

Several economic and market factors influence the CAD/USD rate: 

• Oil prices – As a major oil exporter, Canada’s currency often rises and falls with crude prices.
• Interest rate differentials – Policy decisions by the Bank of Canada (BoC) and the US Federal Reserve impact investor flows.
• Economic data – Employment, inflation, and GDP reports affect relative strength between the two economies.
• Risk sentiment – In times of global uncertainty, investors tend to favour the US dollar as a safe-haven.

Understanding these drivers helps investors anticipate potential currency risks when buying US equities. 

Dividends and the FX factor 

Many Canadian investors in US markets are not only after capital gains but also dividend income. Here again, the CAD to USD rate matters. 

• Dividend payments are issued in US dollars and converted to Canadian dollars by the investor’s broker.
• If the CAD is strong, those dividends shrink in local terms.
• If the CAD is weak, investors enjoy higher dividend payouts once converted.

In addition, the US government withholds 15% tax on dividends for Canadian residents (under the Canada–US tax treaty), which is another layer to consider alongside FX. 

Tax considerations with currency conversion 

Canadian investors must report capital gains and dividends in CAD on their tax returns. This means: 

• All transactions involving US securities require conversion into Canadian dollars using the Bank of Canada daily exchange rate or another accepted method.
• Currency fluctuations between purchase and sale dates can create additional taxable gains or losses, even if the stock’s USD price hasn’t changed.

This makes accurate record-keeping essential for avoiding surprises at tax time. 

Currency risk management strategies 

Fortunately, Canadian investors don’t have to leave everything to chance. Several strategies can help manage or reduce FX risk: 

1. Use a US-dollar account 

Many brokers offer US-denominated accounts. This allows investors to hold USD directly, avoiding repeated conversions when trading multiple US securities. 

2. Hedge with financial instruments 

Exchange-traded funds (ETFs) often come in currency-hedged versions, which aim to neutralize FX movements. Alternatively, forward contracts and options can be used, though these are more advanced tools. 

3. Diversify across markets 

Balancing investments between Canadian, US, and international markets can reduce overexposure to any single currency. 

4. Monitor exchange rates 

Keeping an eye on live CAD/USD rates helps investors plan conversions more effectively. Booking trades when the rate is favourable can significantly improve outcomes. 

Case study: Long-term impact of FX on a US stock investment 

Imagine two Canadian investors buying USD 50,000 worth of Microsoft shares in 2010. One focuses only on stock performance, while the other tracks both stock and FX effects. 

• Microsoft rose from ~USD 25 in 2010 to ~USD 400 in 2025 (a 1,500% gain).
• Over the same period, CAD weakened from ~0.95 USD to ~0.74 USD.

The weakening CAD boosted returns even further when converting back, turning a great investment into an exceptional one. 

This case shows that FX swings can materially alter long-term wealth creation. 

Opportunities for Canadians 

While currency risk adds complexity, it can also be an opportunity. A weaker Canadian dollar increases the local value of US assets, benefiting investors who already hold them. 

Some Canadians even view US investments as a hedge against domestic currency weakness. In uncertain economic times, exposure to USD assets can act as a financial safety net. 

Risks to watch:

That said, risks remain: 

• CAD appreciation reduces CAD-denominated returns from US holdings.
• Conversion costs charged by banks can quietly erode gains.
• Timing mismatches, selling at a time of an unfavourable rate can offset years of growth.

Being proactive about managing these risks helps investors safeguard their portfolios. 

Best practices for Canadian investors in US markets 

• Compare exchange providers – Don’t settle for high bank spreads; specialist FX providers often offer better rates.
• Track both stock and currency performance – Review returns in both USD and CAD terms.
• Plan for large conversions – If you expect to invest or liquidate large amounts, monitor rates and consider booking forward contracts.
• Use tax-efficient accounts – Registered accounts like RRSPs may avoid US withholding tax on dividends, though FX still applies.
• Stay informed – Keep an eye on BoC and Fed policy announcements, oil markets, and Canadian economic releases.

Conclusion: Don’t ignore the exchange rate 

For Canadians investing in US stocks, the CAD to USD exchange rate is more than just a background number. It’s a powerful force that can shape overall returns. From the cost of buying shares to the value of dividends and eventual capital gains, FX movements play a role at every step. 

By understanding how the exchange rate works, monitoring its drivers, and adopting simple strategies, Canadian investors can make more informed decisions and protect their portfolios. In a world where markets are interconnected, being currency-aware is just as important as picking the right stock.