The Canadian dollar has been on the rise recently, currently sitting at about 78 cents U.S.
Todd Hirsch, Chief Economist with ATB Financial, says that's up about five cents from a month ago.
He says a shift in position from the Bank of Canada on interest rates has helped push the dollar higher.
"The main reason why we've seen strengthening in the Canadian dollar is because there has been a shift in tone from the Bank of Canada," Hirsch explains. "The Bank of Canada having started to signal now that interest rates could start to go up in Canada as early as next week on Wednesday.
"As a result, the Canadian dollar has been rallying on international currency markets," he adds. "Prior to about a month ago, the Bank of Canada was still suggesting that interest rate increases are going to be a long time in the future. It now appears that the Canadian economy is strengthening and the Bank of Canada is now signalling that interest rates are likely to go up sooner, rather than later."
While the increase in value of the dollar is good news for travelers to the U.S. and importers, Hirsch points out that there is a flip side to a higher-value Canadian dollar.
"It's a challenge for exporters and Canada is very much an export-oriented nation," he says. "Our energy resources, our agricultural resources, if they're being sold into the U.S. market and the Canadian dollar is appreciating, we're receiving fewer U.S. dollars in return."
The 40-year average value of the Canadian dollar has been 81 cents U.S., Hirsch says. He points out that the stretch from 2010 to 2013 where the Canadian dollar hovered around par with the U.S. dollar was unusual historically.
Hirsch says the markets will be keeping a close watch on Wednesday's Bank of Canada announcement on interest rates. That decision is expected to have a further impact on the value of the Canadian dollar.
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