Strong Canadian Dollar and XEQT: What a Rising Loonie Means for Your Portfolio in 2026

I remember checking my portfolio in early 2026 and wondering why XEQT was barely up even though US stocks were rallying. The S&P 500 had been on a solid run, international markets were posting respectable gains, and yet my XEQT holdings looked sluggish by comparison. For a moment I wondered if something was broken – maybe Wealthsimple was displaying the wrong numbers.

Then I looked at the exchange rate and it clicked.

The Canadian dollar had been climbing. After spending much of 2024 and early 2025 hovering around $0.70-$0.72 USD, the loonie was pushing higher – and that rising CAD was quietly eating into my foreign-denominated returns. The US stocks inside XEQT were doing just fine in USD terms. But when those gains got translated back into my stronger Canadian dollars, a meaningful chunk of the performance disappeared.

It was frustrating at first. That feeling of “the market is going up but my portfolio is not keeping pace” is one of the most psychologically difficult experiences for Canadian investors. You see the headlines about US market highs, you look at your XEQT balance, and the numbers do not match.

But after sitting with it for a few minutes – and pulling up some historical data – I remembered something important: this is exactly how a globally diversified, unhedged portfolio is supposed to work. Currency movements cut both ways. The weak loonie that boosted XEQT returns in previous periods was now swinging back the other way. And the correct response, as always, is to do absolutely nothing.

Let me walk you through exactly what is happening, why it matters less than you think, and what you should (and should not) do about it.

1. How Currency Affects Your XEQT Returns

If you are new to XEQT, here is the essential thing to understand: approximately 75% of XEQT is invested outside of Canada, in stocks priced in US dollars, euros, British pounds, Japanese yen, and dozens of other currencies. Only about 25% sits in Canadian-dollar-denominated assets.

This means that for the majority of your XEQT holdings, there is a two-step process happening every single day:

1. The foreign stocks go up or down in their local currency
2. Those local-currency returns get converted back into Canadian dollars

When the Canadian dollar strengthens, that second step works against you. Each US dollar, euro, or pound is now worth fewer Canadian dollars – so even if the underlying stocks gained value, the currency conversion shrinks those gains.

The Simplified Math

Here is the easiest way to think about it. Suppose the US stock portion of your XEQT gains 10% in USD terms over a given period. During that same period, the Canadian dollar strengthens 5% against the USD.

Your approximate return in Canadian dollars is:

10% (stock gain) - 5% (currency headwind) = roughly 5% in CAD terms

You still made money. The stocks still performed well. But the rising loonie clawed back about half of your gains when everything got converted back to Canadian dollars.

Now flip the script. If the Canadian dollar had weakened by 5% during that same period, your return would have been roughly 15% in CAD terms – the stock gain plus a currency tailwind. This is exactly what happened during the periods of loonie weakness we covered in our weak Canadian dollar and XEQT piece.

The key insight: your XEQT returns in Canadian dollars are always a combination of the underlying stock performance AND the currency movement. When CAD strengthens, currency is a headwind. When CAD weakens, currency is a tailwind. And you cannot have one without eventually getting the other.

2. XEQT’s Currency Exposure Breakdown

To understand how much a rising loonie really affects your portfolio, you need to see where XEQT’s money actually sits. Here is the approximate breakdown by currency, based on XEQT’s geographic diversification and underlying holdings:

Look at that table carefully. If the Canadian dollar strengthens by 5% against all foreign currencies simultaneously, it creates roughly a 3.75% drag on your entire XEQT portfolio – even if every single stock inside the fund held perfectly steady.

That is significant in the short term. Over a year where stocks might return 7-10%, losing nearly 4 percentage points to currency can cut your Canadian-dollar returns in half.

But here is what the table also shows: 25% of your portfolio is completely immune to currency movements. Your Canadian stock allocation inside XEQT is priced in CAD, earned in CAD, and unaffected by the exchange rate. This built-in Canadian allocation provides a natural buffer.

And of course, the drag from a strong CAD is not permanent. It is not like paying a fee. It is simply the other side of the coin from the boost you receive when the loonie weakens. Which brings us to the question on everyone’s mind.

3. Why the Canadian Dollar Is Strengthening in 2026

Before we go further, let me address what is driving the loonie higher in recent months. Understanding the “why” helps you see that these are normal economic forces – not something that signals you should change your investment approach.

Several factors have been pushing the Canadian dollar up:

• Commodity price recovery: Canada is a resource-rich economy. When oil, natural gas, and other commodity prices rise, demand for Canadian dollars increases because global buyers need CAD to purchase Canadian exports. Firming commodity prices have been a meaningful tailwind for the loonie.

• Narrowing interest rate differentials: The Bank of Canada’s rate path relative to the US Federal Reserve matters enormously for currencies. When the gap between Canadian and US interest rates narrows – or when markets expect it to narrow – the CAD tends to strengthen because the relative yield advantage of holding USD diminishes.

• Improved economic sentiment: Stronger-than-expected Canadian economic data, improving labour markets, or positive trade developments can all attract foreign capital into Canada, pushing the loonie higher.

• US dollar softness: Sometimes a stronger CAD is less about Canada doing well and more about the US dollar weakening globally. If the USD pulls back due to fiscal concerns, shifting monetary policy expectations, or geopolitical factors, the CAD can rise even without much changing on the Canadian side.

• Trade normalization: Periods of reduced trade friction and more stable cross-border relationships tend to benefit the Canadian economy and, by extension, the loonie.

The important thing to recognize is that all of these forces are cyclical. Commodity prices rise and fall. Interest rate differentials shift. Sentiment swings. The same factors pushing the CAD higher today will eventually reverse or be offset by other forces pushing it lower. This is not a one-way street.

4. Historical Perspective: Currency Swings Are Normal

If you are feeling anxious about a rising loonie dragging down your XEQT returns, I want to put this moment into historical context. Because this has happened before – many times – and long-term investors came out just fine.

The CAD/USD Has Swung Wildly Over the Decades

Here is a quick look at how the Canadian dollar has moved against the US dollar over the last 50 years:

• 1976: 1 CAD = ~$1.01 USD (near parity)
• 1986: 1 CAD = ~$0.72 USD (loonie crashed)
• 2002: 1 CAD = ~$0.62 USD (all-time low)
• 2007: 1 CAD = ~$1.10 USD (above parity – the highest in modern history)
• 2011: 1 CAD = ~$1.05 USD (back near parity on commodity boom)
• 2016: 1 CAD = ~$0.72 USD (oil crash hammered the loonie)
• 2021: 1 CAD = ~$0.83 USD (post-pandemic recovery)
• 2024-2025: 1 CAD = ~$0.70-$0.72 USD (loonie weakness)

Look at that range: from $0.62 to $1.10. The Canadian dollar has lost 40% of its value and gained 80% of its value against the USD within a single generation of investing. These are enormous swings.

And yet – and this is the crucial point – a Canadian investor who simply held a diversified global equity portfolio through all of this would have done spectacularly well. The currency went up and down and up and down, and the net effect over 30+ years was a relatively modest factor compared to the compounding power of equity returns.

The 2009-2011 Loonie Rally

The most dramatic recent example of a strengthening CAD came between 2009 and 2011. Coming out of the global financial crisis, commodity prices surged. Oil went from under $40 to over $100 per barrel. The loonie rode that wave from about $0.77 USD all the way back to parity.

For Canadian investors holding unhedged foreign equities during that period, the currency headwind was real. If US stocks gained 15% but the CAD also rose 15% against the USD, your Canadian-dollar return was essentially flat. All those stock gains were absorbed by the currency movement.

It felt terrible at the time. But investors who stayed the course – who kept buying through the strong loonie period – were handsomely rewarded in the years that followed, as both equity returns compounded and the currency eventually swung back.

The Takeaway

Currency swings are a feature of global investing, not a bug. They are the price of admission for accessing the world’s best companies through a diversified fund like XEQT. Every period of CAD strength is eventually followed by a period of CAD weakness, and vice versa. The investors who win are the ones who refuse to let either phase change their behaviour.

5. Hedged vs Unhedged: Why XEQT Stays Unhedged (and Why That Is Smart)

When the loonie is rising and your XEQT returns are being dragged down by currency, it is natural to wonder: “Why does XEQT not just hedge against this?”

It is a reasonable question. And the answer is that XEQT’s decision to remain unhedged is deliberate – and for long-term investors, it is the right call.

The Real Costs of Currency Hedging

Hedging is not free. When a fund hedges its currency exposure, it enters into forward contracts that lock in exchange rates. These come with real costs:

• Direct hedging costs of 0.2-0.5% per year – an ongoing drag on returns that never goes away, strong loonie or weak
• Tracking error from imprecise estimates of future cash flows and portfolio values
• Rebalancing costs from rolling over hedges monthly or quarterly

Over a 20- or 30-year investing horizon, those costs add up. You are paying a recurring insurance premium to smooth out a risk that largely cancels itself out over your full timeline.

If you want to dig deeper, our XEQT vs HEQT hedging comparison covers the numbers in detail. The bottom line from Vanguard, academic research, and BlackRock itself: for equity investors with time horizons over 10 years, hedging provides minimal benefits after accounting for costs.

Currency Exposure Is Actually a Feature

Here is something that surprises a lot of people: currency exposure can actually improve your portfolio’s risk-adjusted returns. If a global economic shock hits and Canadian stocks fall, the CAD likely weakens too (as foreign investors pull capital out of Canada). That weakening CAD would then cushion your foreign holdings, partially offsetting the decline. A hedged fund would not give you that natural cushion.

Hedging can make sense for short time horizons (under 3-5 years) or bond-heavy portfolios. But for the typical XEQT investor investing for retirement decades away, unhedged is the way to go.

6. What You Should Actually Do

Here is the section you have been waiting for. The Canadian dollar is strengthening, your XEQT returns are looking soft compared to the headlines, and you want to know what action to take.

The answer is beautifully simple: do nothing.

I know that sounds unsatisfying. Our brains are wired to respond to discomfort with action. When something feels wrong – when your portfolio is not keeping pace with the US market – every instinct screams at you to do something. Switch to a hedged fund. Overweight Canadian stocks. Move everything to USD. Time the currency market.

Do not do any of that. Here is your actual action plan:

Keep Buying on Your Regular Schedule

Whether you invest weekly, biweekly, or monthly, stick to your plan. The exchange rate on any given purchase date is irrelevant to your long-term outcome. What matters is that you keep buying consistently. If you are automating your XEQT purchases through Wealthsimple, even better – the automation removes the temptation to second-guess.

Do Not Switch to a Hedged Fund Mid-Stream

Selling XEQT to buy a hedged alternative because the CAD is currently strong is the definition of performance chasing. You would be locking in the currency headwind (by selling during a strong CAD period) and then missing the eventual rebound (when the CAD weakens again and unhedged funds outperform). It is buying high and selling low, applied to currency instead of stocks.

Do Not Overweight Canadian Stocks

Another temptation during a strong loonie period is to increase your Canadian stock allocation to “avoid” the currency headwind. But this trades one risk (currency) for another, arguably worse one (concentration). Canada is roughly 3% of the global stock market. Overweighting it significantly means betting heavily on a narrow set of sectors – primarily financials, energy, and materials. That is not diversification. That is giving up the benefits of geographic diversification because of a temporary currency trend.

Do Not Try to Time the Currency

If you are thinking about waiting for the CAD to weaken before making your next XEQT purchase, stop. Currency timing is even harder than stock market timing – and stock market timing already fails most of the time. The same studies that show you cannot reliably time the stock market show even worse results for currency timing. Just buy and hold. The best time to buy XEQT is whenever you have the money to invest.

Reframe Your Perspective

Instead of thinking “the strong loonie is hurting my returns,” try thinking “I am staying disciplined through a normal market cycle.” Because that is exactly what you are doing. The commitment to staying invested for the long term is what separates successful investors from everyone else.

7. The Silver Lining: You Are Buying Foreign Stocks on Sale

Here is something most investors miss when they are busy worrying about the currency headwind on their existing holdings: a strong Canadian dollar means your new XEQT purchases are getting you more foreign stocks for the same amount of Canadian dollars.

Think about it this way. When you buy one unit of XEQT, about 75% of your money is effectively going to buy foreign stocks. When the CAD is strong, those Canadian dollars stretch further in foreign markets:

• A stronger CAD buys more US dollars, which buys more US stock
• A stronger CAD buys more euros, which buys more European stock
• A stronger CAD buys more yen, which buys more Japanese stock

In other words, you are getting the world’s stocks at a discount relative to when the loonie was weak.

Dollar-Cost Averaging Loves Currency Swings

If you are investing regularly – and you should be – dollar-cost averaging is working in your favour during periods of CAD strength. Here is how:

• When CAD was weak (say, $0.70 USD): Your XEQT purchases bought fewer foreign shares per dollar, but those shares were worth more in CAD terms
• When CAD is strong (say, $0.78 USD): Your XEQT purchases buy more foreign shares per dollar, even though those shares are worth less in CAD terms right now

Over time, this natural process means you accumulate more shares during strong-CAD periods and fewer shares during weak-CAD periods. When the currency eventually swings back – and it always does – all those “extra” shares you accumulated during the strong-CAD period become worth more. It is the same principle as buying more XEQT during market dips, but applied to currency.

A Practical Example

Let’s say you invest $500 per month into XEQT. During a weak CAD period ($0.70 USD), your $500 CAD effectively buys $350 USD worth of foreign stock each month. During a strong CAD period ($0.78 USD), that same $500 CAD buys $390 USD worth – roughly 11% more purchasing power.

Over six months, that is an extra $240 USD worth of foreign stock accumulated, simply because the loonie was strong. When the currency eventually normalizes, those extra shares will be worth their full value.

This is one of the great hidden advantages of consistent investing through currency cycles. You are not just surviving the strong CAD – you are quietly positioning yourself for better returns down the road.

8. Common Questions About Currency and XEQT

“My XEQT is underperforming the S&P 500. Should I switch to a US index fund?”

No. XEQT will almost always look different from the S&P 500 because it includes Canadian, international, and emerging market stocks – not just US stocks. On top of that, currency effects make the comparison even more misleading during periods of CAD strength. Comparing XEQT to the S&P 500 in CAD terms is an apples-to-oranges comparison. XEQT is designed for global diversification, not to track a single country’s index.

“Should I buy US-dollar-denominated ETFs directly to avoid the currency conversion?”

Buying USD-denominated ETFs does not eliminate your currency exposure – it just changes where the conversion happens. If you hold VTI (a US total market ETF) in a USD account, you still have to convert your CAD to USD to buy it, and you will eventually convert back to CAD to spend it. The currency risk is identical. The only scenario where holding USD directly can help is if you have natural USD income or expenses, which eliminates some conversion costs. For most Canadians, XEQT’s structure handles everything automatically and more efficiently. Check out our XEQT currency exposure guide for the full picture.

“Does a strong CAD mean I should wait to invest?”

No. This is just a different version of market timing, and it does not work for currencies any better than it works for stocks. Nobody knows when the CAD will peak, or how long it will stay strong, or how quickly it might reverse. The research is overwhelming: time in the market beats timing the market, and that applies to currency markets too. Invest when you have the money. Period.

“If currency effects wash out over time, why should I care about them at all?”

You should understand them so that you do not panic when they show up in your returns. The biggest risk of currency volatility is not the math – it is the investor behaviour it can trigger. People see their XEQT returns lagging, assume something is wrong with the fund, and make emotional changes to their strategy. Understanding that currency is a temporary, normal factor helps you stay the course. And staying the course is the single most important thing a long-term investor can do.

“Will the Canadian dollar keep strengthening?”

I have no idea. Neither does anyone else. Currency forecasting has one of the worst track records of any financial discipline. What I can tell you is that the CAD/USD exchange rate has ranged from $0.62 to $1.10 over the past 50 years, and it has never stayed at one extreme for very long. It will fluctuate. Your job as an XEQT investor is to invest through the fluctuations, not predict them.

9. Conclusion: The Strong Loonie Is Temporary. Your Strategy Should Not Be.

Let me bring this full circle to that moment I described at the beginning – logging in, seeing flat-ish XEQT returns despite strong global markets, and feeling that twinge of doubt.

That doubt is normal. It is human. And it is exactly the kind of emotion that leads investors to make costly mistakes.

Here is what I want you to remember the next time you check your portfolio during a strong-CAD period:

• The underlying stocks are still working for you. The companies inside XEQT are still earning revenue, growing profits, and generating returns. The currency headwind is a translation issue, not a performance issue.

• You have seen this before. The CAD has strengthened and weakened many times over the decades. Long-term investors who stayed invested through every cycle came out ahead. Every single time.

• Your new purchases are buying more. Every dollar you invest during a strong-CAD period buys more foreign stock. When the currency eventually reverses – and it will – those extra shares will amplify your returns.

• Doing nothing IS the strategy. Not reacting to currency movements is not laziness or indifference. It is discipline. It is the evidence-based approach that outperforms currency timing, fund switching, and every other reactive strategy.

The Canadian dollar will strengthen. Then it will weaken. Then it will strengthen again. Through all of it, XEQT will keep holding thousands of stocks across 49 countries, in dozens of currencies, rebalancing automatically, and compounding quietly in the background.

Your job is simple: keep buying. Keep holding. Keep ignoring the noise.

The boring approach keeps winning.

Related reading:

• How the Weak Canadian Dollar Boosts Your XEQT Returns – the companion piece covering the other side of the currency coin
• XEQT Currency Exposure Explained – a deep dive into exactly how currency affects XEQT’s underlying holdings
• XEQT vs HEQT: Currency Hedging Comparison – detailed breakdown of hedged vs unhedged performance
• What Is XEQT? – the complete beginner’s guide