Bank of Canada Exchange Rates Monthly Average

On the last business day of each month, the monthly average exchange rates in the Bank of Canada get published on their official website. The bank usually expresses the exchange rates as one unit of the foreign currency converted into Canadian dollars.

Thankfully, the monthly average foreign exchange rates in the Bank of Canada can help brokers and businesses forecast future exchange rates. That allows them to make informed decisions, minimizing the currency exchange risks and maximizing the returns.

In this guide, we look at the monthly average exchange rates by the Bank of Canada from Dec 2020 to Apr 2021. We’ll also look at how the average exchange rates can help you forecast future exchange rates for different currencies against the Canadian dollar.

Monthly Average Exchange Rates in the Bank of Canada

As mentioned earlier, the Bank of Canada usually publishes monthly average exchange rates for the Canadian dollar against other currencies on their official website.

The bank does that on the last business day of each month. However, all the exchange rates are indicative. The bank has obtained the figures from averages of aggregated price quotes from various financial institutions.

We’ve compiled the following table of year-end and annual average exchange rates that the Bank of Canada produces.

The table below shows the monthly average exchange rates for various currencies against the Canadian dollar from 2020-12 to 2021-04.

Source: Bank of Canada

If your company performs transactions internationally, you have to use exchange rates to convert the foreign currency transactions. You also have to translate foreign currency financial statements into Canadian dollars if you live in Canada.

You must always report all the transactions in Canadian currency when filing Canadian tax returns. If the transaction involved the purchase of an asset or investment, you have to use the active exchange rate on the transaction date.

You can find out the exchange rate for a particular date at the Bank of Canada daily exchange rates lookup. The University of BC Pacific Exchange Rate also has the daily currency exchange rate data in their database.

Understanding the Basics of Foreign Exchange Rates

If you travel overseas or perform an international transaction, you may need to convert more Canadian money to purchase a foreign currency, and sometimes even less.

It is the foreign exchange market that determines the value of Canadian dollars. The bank of Canada rarely intervenes to support the value of the Canadian currency.

So, the value of the Canadian dollar can rise or fall depending on how much individuals in the foreign exchange markets want to sell or buy it. That allows the currency to float.

Rather than setting the CAD exchange rate, the Bank of Canada allows the Canadian dollar to float. It only focuses on setting the interest rates to maintain a two percent inflation rate in Canada.

The demand for Canadian goods and services also affects the demand for the Canadian dollar. The more foreigners want to buy what the country sells, the more the Canadian dollar becomes worth.

Notably, the strength of Canada’s economy relative to other countries’ economies also affects the CAD’s value. Other factors that can make the dollar go down or up are:

• Canada’s inflation rates relative to other countries
• Canada’s interest rate relative to other countries
• Demand for Canada’s financial assets like bonds

How to Forecast Currency Exchange Rates

Now that you know the monthly average exchange rates in the Bank of Canada, you are wondering if you could predict the future rates. Here are the ways to forecast the rates.

Purchasing Power Parity

The purchasing power parity (PPP) is a forecasting method based on the theoretical law of one price because of its indoctrination in the textbooks. The law states that identical products in different countries need to have the same prices.

For instance, the price of a pencil in Canada should be the same as the price of a pencil in the United States. That is after considering the exchange rate and excluding shipping and transaction costs. Nobody should have the opportunity to buy cheaper pencils in one country and sell them in the other country for profits.

Relative Economic Strength

This forecasting method focuses on the economic strength in different countries to predict the movement of exchange rates. It’s based on the idea that countries with strong economies and potentially high economic growth rates are more likely to attract foreign investments.

Econometric Models

Another common way to forecast exchange rates is by assembling all factors that might affect currency movements. It establishes a model that relates the variables to the currency exchange rate. All the elements included in the econometric models are based on economic theories and can influence the exchange rates significantly.

Final Words

Now that you know the monthly average exchange rates in the Bank of Canada, you can easily forecast the future exchange rates. To maximize your savings on currency exchange, consider converting your money at KnightsbridgeFX. As the most reputable foreign exchange provider in Canada, we offer the lowest exchange rates in Fort St. John.