Should I worry about how the Canadian dollar might affect my retirement?

Posted in Market, RRSP, Investments, Expertise, Stocks, Bonds, Andrew Ross

If you are feeling that the past year has been a very volatile time for the Canadian dollar, you might be wondering how that may affect your retirement plans.

From a low in the past 12 months of .727c to the US dollar, to a high of .826c to the US dollar – and everything in between – the Canadian dollar has certainly had its ups and downs.

When you view a chart of this activity there appears to be a lot of hills and valleys over the past year. However, that chart would mask the fact that the Canadian dollar is one of the worlds most stable currencies.

According to the International Monetary Fund, the Canadian dollar is the fifth most widely held currency in the world. 

While it is still more stable than many smaller countries, however, it still has its moments of volatility.

What are the prime reasons for the volatility of the Canadian dollar?

Over the years there have been two main actors affecting the value of the dollar here in Canada, the price of oil and interest rates.

Firstly, Canada is seen as an oil producing nation and when the price of oil is rising, so to does the value of our dollar. Conversely, when oil prices are falling, our dollar will tend to drift lower relative to other currencies.

The Canadian dollar has been referred to as a ‘petro-dollar’ for this reason.

Secondly, another major driver in valuing the Canadian dollar is our own interest rates relative to the interest rates in the US.

If the Canadian interest rates are rising and the US rates are flat. our dollar will rise against the US. Conversely if our rates are flat and the US rates are rising our dollar will decline.

This makes sense, if rates are higher in the US, international money managers are inclined to sell Canadian dollars and buy US dollar denominated securities to take advantage of the higher rates there.

So, how can the fluctuation of the Canadian dollar impact me?

Much of that will depend on your personal behaviours during your retirement years. If you want to spend your winters down south, paying with Canadian dollars could be more expensive if our dollar is low. 

If your preference is European travel, the value of our dollar relative to the Euro will determine how far your funds will go.

So how does one mitigate the risks associated with a fluctuating Canadian dollar?

One way is to make sure your retirement portfolio is diversified outside of the Canadian market. Shares of companies in the US or Europe that are valued in those currencies help moderate the purchasing power of the Canadian currency holdings in your retirement portfolio.

The portfolio managers at Campbell, Lee and Ross are well versed in currency risk mitigation for retirement portfolios.


We can customize a solution that will meet your retirement needs and help you avoid nasty currency fluctuations. Call us to find out more.