How the Weak Canadian Dollar Quietly Boosts Your XEQT Returns

I logged into my Wealthsimple account last Tuesday morning, coffee in hand, expecting the usual slow-and-steady progress I have come to love about XEQT. Instead, I did a double take. My portfolio was up noticeably more than I expected — not just a little, but enough to make me wonder if something was wrong with the display.

So I did what any curious investor does: I pulled up the underlying ETF performance. The US market was up, sure, but not by that much. International stocks were having a decent run, but nothing extraordinary. The math was not adding up.

Then it hit me. I switched over to check the CAD/USD exchange rate and there it was — the Canadian dollar had slipped again, hovering around $0.71 USD. That “extra” return in my portfolio was not coming from stock gains alone. A meaningful chunk of it was the falling loonie making my foreign holdings worth more when measured in Canadian dollars.

It was a pleasant surprise — the kind of investing tailwind you do not plan for but are happy to receive.

If you own XEQT and have noticed your returns looking a bit juicier than expected lately, there is a good chance the same thing is happening to you. Let me break down exactly what is going on, why it matters, and — most importantly — what you should (and should not) do about it.

1. What Is Happening with the Canadian Dollar in 2025-2026

The Canadian dollar has been under pressure for a while now, and 2025-2026 has continued that trend. As of early May 2026, one Canadian dollar buys roughly $0.70 to $0.73 USD, depending on the week. Compare that to the 2021-2022 period when the loonie was often in the $0.78-$0.80 USD range, and you can see just how much ground it has lost.

The Key Drivers Behind the Weak Loonie

You do not need to become a currency analyst, but it helps to understand the main forces at play:

• Bank of Canada rate cuts: The BoC has been cutting rates aggressively since mid-2024, bringing the policy rate significantly lower. Lower interest rates make a currency less attractive to foreign investors seeking yield, which puts downward pressure on the CAD.

• US economic resilience: The American economy has stayed surprisingly strong, keeping the US dollar firm globally. When the USD is strong, most other currencies — including ours — look weak by comparison.

• Commodity price softness: Canada is a resource-heavy economy. When oil, natural gas, and other commodity prices cool off, the loonie tends to follow. We have not seen the kind of commodity boom that pushed the CAD to parity with the USD back in 2011-2013.

• Trade tensions and uncertainty: Ongoing trade policy uncertainty — tariff threats, cross-border trade friction, and shifting global supply chains — has added a risk premium that tends to benefit the USD as a safe-haven currency at Canada’s expense.

• Diverging monetary policy: While the Bank of Canada has been cutting rates, the US Federal Reserve has been more cautious. This rate differential creates a natural flow of capital toward the higher-yielding currency (USD), weakening the CAD.

The bottom line: the weak Canadian dollar is not a random blip. It is driven by real economic fundamentals. But here is the twist — if you are an XEQT investor, this weakness is actually working in your favour.

2. How the Weak Dollar Directly Boosts Your XEQT Returns

Here is where things get interesting for XEQT holders. If you have read our deep dive on XEQT’s currency exposure, you know that approximately 75% of XEQT is invested in assets denominated in foreign currencies — primarily US dollars, but also euros, British pounds, Japanese yen, and others.

Because XEQT is unhedged (BlackRock does not neutralize currency movements), every change in the exchange rate flows directly through to your returns as a Canadian investor.

The Simple Math

Here is an easy way to think about it:

Let’s say the US portion of your XEQT (about 45% of the fund) gained 5% in USD terms over a period. During that same period, the Canadian dollar fell 3% against the USD.

Your return in Canadian dollars is not just 5%. It is approximately 8% — the stock gain plus the currency gain stacked on top.

Here is why: those US stocks are priced in USD. When you convert those USD-denominated gains back to CAD (which happens automatically inside XEQT’s NAV calculation), a weaker CAD means each USD is worth more loonies. So the same stock performance translates to a bigger number on your Canadian brokerage statement.

Illustrative XEQT Returns: USD vs CAD

To make this more concrete, here is an illustrative comparison showing how currency movements have affected XEQT returns over different time horizons:

Note: These are illustrative figures to show the currency effect. Actual returns will vary. The currency “boost” is not precisely additive due to compounding, but this gives you the right idea.

Look at that 5-year row. A 52% return in USD terms became roughly 67% in CAD terms. That extra 15 percentage points did not come from better stock picking or a special strategy. It came purely from the Canadian dollar weakening over that period.

That is real money. On a $100,000 portfolio, that currency tailwind alone represents roughly $15,000 in additional returns you would not have captured if XEQT were currency-hedged.

It Is Not Just the USD

Remember, XEQT holds stocks from around the world. About 20% is in international developed markets (Europe, Japan, Australia) and about 5% is in emerging markets. The CAD has weakened against many of these currencies too, so the currency boost is not limited to the USD portion — it is happening across your entire foreign allocation.

3. The Double-Edged Sword: What Happens When CAD Strengthens

Before you start celebrating, I need to give you the full picture. The currency tailwind works both ways. When the Canadian dollar strengthens against foreign currencies, the exact opposite happens — your foreign holdings are worth less in CAD terms, even if the underlying stocks went up.

A Historical Example

Cast your mind back to 2009-2011. Coming out of the financial crisis, commodity prices surged. Oil climbed from under $40 to over $100 per barrel. The Canadian dollar rode that wave from around $0.77 USD all the way to parity — $1.00 CAD = $1.00 USD — by late 2011.

That was great for Canadians travelling to the US. It was terrible for Canadians holding unhedged foreign investments.

During that period, a Canadian investor holding US stocks would have seen a significant chunk of their returns eaten by the rising loonie. If US stocks gained 10% but the CAD rose 10% against the USD, your return in Canadian dollars was essentially flat — all the stock gains were wiped out by the currency headwind.

A More Recent Example

Even in shorter periods, you can feel the swing. In mid-2020 to mid-2021, the CAD strengthened from about $0.72 to $0.83 USD. XEQT investors during that stretch saw their CAD-denominated returns lag behind the actual stock performance of the underlying holdings. The stocks were doing great; the strong loonie was stealing some of the gains.

What This Means for You

The currency effect is symmetrical:

• Weak CAD = currency tailwind (boosts your CAD returns)
• Strong CAD = currency headwind (reduces your CAD returns)
• Stable CAD = no currency effect (returns match underlying performance)

This is why I want to be very clear: the current weak CAD is a tailwind, not a feature you should rely on. It is a bonus today, but it will reverse at some point. The question is when, and by how much — and as we will see in the next section, nobody knows the answer.

4. Why You Should NOT Try to Time Currencies

I know what some of you are thinking. “If a weak CAD boosts my XEQT returns, should I be loading up on foreign investments when the dollar is weak? And selling when it is strong?”

Absolutely not. Here is why.

Currency Prediction Is a Fool’s Game

If timing the stock market is hard (and it is — we have talked about that), timing currency movements is arguably even harder.

Consider this: some of the world’s largest banks and hedge funds employ teams of PhD economists, deploy sophisticated models, and spend millions on currency research. Their track record? Abysmal.

• A classic study by Meese and Rogoff (1983) found that a simple “the exchange rate tomorrow will be the same as today” model outperformed leading economic models at predicting currency movements. Decades of follow-up research have confirmed this finding still largely holds.

• The Bank for International Settlements has noted that even central banks — the institutions that set interest rates — have a poor record of predicting where exchange rates will go.

• Professional currency forecasters surveyed by Bloomberg regularly disagree with each other by wide margins. At the start of 2025, forecasts for where CAD/USD would be by year-end ranged from $0.68 to $0.78. That is a massive spread, and it tells you that even the “experts” are essentially guessing.

Why Is Currency So Hard to Predict?

Currency values are driven by a complex mix of factors that interact in unpredictable ways:

• Interest rate differentials
• Trade balances
• Capital flows
• Political events
• Commodity prices
• Market sentiment and speculation
• Central bank interventions

These factors often push in different directions at the same time, and the market’s reaction to new information is notoriously difficult to anticipate. A rate cut that “should” weaken a currency might actually strengthen it if the market had already priced in a bigger cut.

Your XEQT Strategy Already Handles This

Here is the good news: by holding XEQT and investing consistently, you are already managing currency risk in the most sensible way possible.

• Diversification: XEQT gives you exposure to multiple currencies, so you are never making an all-or-nothing bet on any single exchange rate.

• Dollar-cost averaging: By investing regularly, you are buying at different exchange rates over time, naturally smoothing out the impact of currency swings.

• Long time horizon: Over the decades-long investment horizon that XEQT is designed for, currency movements tend to be a much smaller factor than equity returns (more on this in section 7).

Trying to add a currency timing overlay to your XEQT strategy would introduce complexity, stress, and very likely worse results than simply staying the course.

5. Three Things XEQT Investors Should Actually Do About the Weak CAD

All right, so we have established that the weak Canadian dollar is boosting your XEQT returns, but that you should not try to time currencies. What should you actually do? Here are three practical takeaways.

Action #1: Keep Doing Exactly What You Are Doing

This is the most important one, and I know it sounds anticlimactic. But the best response to a weak Canadian dollar as an XEQT investor is to change nothing about your investment strategy.

• Keep making your regular contributions
• Keep buying XEQT on your normal schedule
• Do not increase your allocation to foreign assets just because the CAD is weak
• Do not reduce your Canadian allocation just because CAD-denominated assets seem less exciting

Your investment strategy should be based on your risk tolerance, time horizon, and financial goals — not on the current exchange rate. The fact that XEQT handles the currency diversification for you is one of the reasons it is such a powerful investment vehicle.

Action #2: Separate Your Travel and Spending Decisions from Your Investing Decisions

Where the weak Canadian dollar does affect your daily life is when you spend money in foreign currencies:

• Travel to the US: Your vacation dollars buy less than they did a few years ago. A $200 USD hotel room now costs you roughly $280 CAD instead of the $250 CAD it might have cost in 2021.

• Online shopping: Buying from US retailers or paying for USD-priced subscriptions (Netflix, software, etc.) is more expensive.

• Cross-border purchases: Anything priced in USD costs more.

It is tempting to conflate these spending impacts with your investing strategy, but they are completely separate. The weak dollar hurting your travel budget and the weak dollar helping your XEQT returns are two different things happening at the same time. Do not let frustration about expensive US vacations lead you to make portfolio changes.

Action #3: If You Have USD Income, Understand the Full Picture

This one applies to a smaller group, but it is worth mentioning. If you are a freelancer, remote worker, or cross-border employee who earns income in US dollars, the weak Canadian dollar is actually a double win for you:

1. Your USD income is worth more CAD when you convert it for living expenses
2. Your XEQT returns are boosted by the same currency effect

If this is your situation, you are in an enviable position. You might consider:

• Whether you want to hold some emergency savings in USD (to avoid conversion costs)
• How you handle USD vs CAD ETFs on your platform
• Tax implications of holding and converting foreign currency (consult an accountant)

But even here, the core advice remains the same: do not let the current exchange rate change your long-term XEQT strategy.

6. The Long-Term Perspective: Why Currency Fluctuations Wash Out

Let me zoom way out for a moment, because I think this is the most important section of this entire post.

Currency Is Noise. Equity Returns Are the Signal.

Over short periods — months, or even a few years — currency movements can have a significant impact on your returns, as we have seen. But over the 20, 30, or 40-year time horizons that most XEQT investors are working with, currency effects become a much smaller part of the story.

Here is why:

Equity returns compound. Currency movements do not (in the same way).

The global stock market has delivered roughly 8-10% annualized returns over very long periods. That compounding is relentless — $10,000 invested at 9% becomes $56,000 in 20 years and $133,000 in 30 years.

Currency movements, by contrast, tend to fluctuate around a range. The CAD/USD rate has spent most of the last 50 years bouncing between $0.62 and $1.10. It goes up, it goes down, and over very long stretches, much of the movement cancels out.

Putting Numbers to It

Consider a Canadian investor who put $10,000 into a global equity fund 30 years ago (1996-2026):

• Total equity return (in local currencies): approximately 7-9x their money
• Currency impact over the full period: maybe 1.2-1.5x (CAD has weakened somewhat over 30 years, but with huge swings in both directions along the way)

The equity returns absolutely dominate. Even in the periods where the currency moved against you, the long-term compounding of stock returns overwhelmed the effect.

What the Academic Research Says

Financial researchers have studied this extensively:

• Fama and French found that for equity investors with horizons longer than 10 years, currency hedging provided negligible benefits and sometimes reduced returns after accounting for hedging costs.

• A Vanguard research paper concluded that for global equity portfolios, the decision to hedge or not hedge currencies had a relatively small impact on long-term returns, though it could affect short-term volatility.

• BlackRock’s own research (and they manage XEQT) has noted that for long-term equity investors, currency exposure can actually improve diversification because currency movements are not perfectly correlated with equity movements.

The Practical Takeaway

If you are in your 20s, 30s, or even 40s and investing in XEQT for retirement, the current CAD/USD exchange rate is almost irrelevant to your eventual outcome. What matters vastly more is:

1. How much you invest (contribution rate)
2. How long you stay invested (time in market)
3. How consistently you invest (dollar-cost averaging vs trying to time things)
4. How low your costs are (XEQT’s 0.20% MER is excellent)

The exchange rate is noise. Your behaviour is signal.

7. But What About Currency-Hedged Alternatives?

You might be wondering: “If currency creates all this short-term noise, why not just use a currency-hedged version of XEQT?”

Fair question. There are hedged ETFs available in Canada, though there is no direct hedged equivalent of XEQT. Here is why most long-term investors — including me — stick with the unhedged version:

The Costs of Hedging

• Direct hedging costs: Fund managers pay for currency forward contracts, which typically cost 0.2-0.5% per year depending on interest rate differentials. This is an ongoing drag on returns.

• Tracking error: Hedging is imperfect. The fund has to estimate future cash flows and hedge accordingly, which creates small mismatches between the hedge and the actual currency exposure.

• Lost diversification benefit: As mentioned above, currency exposure actually adds a diversification layer. Removing it concentrates your portfolio more heavily in CAD-denominated risk.

When Hedging Might Make Sense

To be fair, hedging can make sense in specific situations:

• Short time horizons (under 3-5 years) where you need the money and cannot afford currency volatility
• Fixed-income allocations where currency volatility can overwhelm the smaller bond returns
• Specific tactical views on currency direction (though we have discussed why this is risky)

For most XEQT investors with a long time horizon, unhedged is the right default. The weak Canadian dollar today is a nice tailwind, and when the loonie eventually strengthens, you will accept that headwind knowing that over the full journey, it largely washes out.

8. Wrapping Up: Enjoy the Tailwind, But Do Not Chase It

Let me bring this back to where we started — that moment of pleasant surprise when you check your XEQT portfolio and the returns are better than expected.

The weak Canadian dollar in 2025-2026 is giving XEQT investors a meaningful boost. With approximately 75% of the fund invested in foreign-currency assets, every dip in the loonie translates directly to higher CAD-denominated returns. It is a real effect, and it is putting real extra dollars in your account.

But here is what I want you to take away from this post:

• Enjoy it, but do not depend on it. The currency tailwind is a bonus, not a strategy.
• Do not change your approach. Keep buying XEQT on your regular schedule, whether the CAD is at $0.70 or $0.80 or $0.90.
• Do not try to predict currencies. If the smartest economists in the world cannot do it consistently, neither can we.
• Think in decades, not months. Over the long run, your disciplined investing habits will matter far more than any exchange rate movement.
• Trust the structure. XEQT’s built-in diversification across currencies, geographies, and thousands of companies is doing the heavy lifting for you.

The weak loonie is today’s tailwind. Tomorrow it might be a headwind. Either way, your XEQT strategy does not depend on it — and that is exactly the point.

Keep investing. Keep it simple. The boring approach keeps winning.

Related reading:

• XEQT Currency Exposure Explained — a deep dive into exactly how currency affects XEQT’s underlying holdings
• USD vs CAD ETFs on Wealthsimple — when currency choice matters for ETF selection
• Bank of Canada Rate Cuts in 2026 and XEQT — how falling interest rates affect your portfolio (and the loonie)