Currency Exchange Impact on Investments: What Canadians Need to Know

Currency exchange is unavoidable when investing outside Canada. This page covers how the USD/CAD rate changes your returns in Canadian dollars, when a currency move creates a taxable event (only in non-registered accounts), how to track your adjusted cost base in Canadian dollars, and how much currency exposure an ordinary ETF portfolio already has. It is part of our investing basics guides. The practical side is covered elsewhere: how to buy US stocks from Canada for the purchase itself, where to exchange currency for conversion costs, and asset location for US withholding tax by account.

Key rules at a glance

For the portfolio-construction side of currency risk, compare this with hedged vs unhedged ETFs in Canada.

USD/CAD historical context

Annual average price of one US dollar in Canadian dollars:

Sources: Bank of Canada annual averages from 2017 on; for 2011 and 2016, the average of the Bank of Canada’s daily noon rates; US Federal Reserve annual averages for 2002 and 2007. A rate below 1 (as in 2011) means the Canadian dollar was worth more than the US dollar on average that year.

ACB tracking: practical rules for non-registered

• Record purchase date, USD price, and CAD exchange rate for every buy
• ACB formula: shares × USD price × CAD rate = CAD ACB
• Add to ACB on subsequent buys (average cost basis)
• Reduce ACB proportionally on sell
• Dividends reinvested (DRIP): each reinvestment is a purchase that adds to your ACB, so record its date, amount and exchange rate

If you are converting CAD and USD regularly, our where to exchange currency in Canada guide and Norbert’s Gambit show how to keep those transaction costs low.

Capital gains from currency: a worked example

Scenario: You buy 100 shares of a US stock in a non-registered account (prices and rates are illustrative).

Both the stock appreciation and the currency gain combine into a single capital gain: you report $2,550 on Schedule 3, not two separate amounts. If the CAD had strengthened instead (rate fell from 1.35 to 1.28), your reported capital gain would be lower than the stock-only gain.

Registered accounts: clean and simple

The currency complexity above only applies to non-registered accounts. Inside an RRSP, TFSA, FHSA, or RESP:

• All currency conversions are invisible for tax purposes
• No capital gain arises when you convert CAD to USD, hold USD, or convert back
• You can time conversions purely on exchange rate attractiveness without any tax consequence

This is one of the underappreciated advantages of registered accounts for Canadian investors who want US equity exposure.

Currency risk in Canadian ETF portfolios

Even without holding any foreign-currency assets directly, most Canadian ETF portfolios have implicit currency exposure:

An investor holding XEQT has about 74% of the portfolio in stocks priced in other currencies: as at August 31, 2026, XEQT held about 26% Canadian, 45% US, 24% international developed and 5% emerging-market stocks, so the largest foreign share is in US dollars. This is not inherently a problem; it simply means the portfolio’s day-to-day CAD value partially tracks USD/CAD movements in addition to equity market returns.

Year-end currency conversion for tax reporting

Foreign income and capital gains in a non-registered account are reported in Canadian dollars. CRA’s rules:

• Each amount at the Bank of Canada rate for the day it arose: the purchase date for the cost of a security, the sale date for the proceeds, the payment date for a dividend
• Annual average rate for repeated payments: if you received several payments at different times during the year, CRA says you can use the Bank of Canada annual average rate for that year
• The Bank of Canada publishes both its daily rates and its annual averages on bankofcanada.ca

Related pages

• Hedged vs Unhedged ETFs in Canada
• Investing in US Stocks from Canada: Complete Guide
• Foreign Tax Credit Canada: How to Claim T2209