On October 9, 2025 (and Oct. 10), the Bank of Canada reported a USD/CAD closing rate of 1.4000 (i.e. one U.S. dollar bought 1.40 Canadian dollars). As a rule of thumb, this is the exchange-rate threshold I often cite to clients as a point at which to begin seriously considering converting USD-denominated assets into CAD. In this article, I explain why 1.40 is a meaningful level, what history tells us, and how to think about currency conversion strategy going forward.
Historical Context: What Does 1.40 Mean in the Big Picture?
Before making decisions around currency conversion, it’s essential to ground expectations in historical data.
Long-Term Range of the USD to CAD Exchange Rate
Over many years, the USD/CAD exchange rate has frequently inhabited a range between 1.20 and 1.30 in more “normal” times (i.e. absent dramatic shocks), depending on the timeframe you look at. That suggests that 1.40 is toward the upper end of what we might reasonably expect under more extreme conditions.
One way to see that is via the Bank of Canada’s exchange-rate archives and annual averages.
If USD/CAD reverts toward somewhere in the 1.2–1.3 region over the long run, then a 1.40 rate offers a buffer, it suggests we’re getting “paid” extra relative to long-run average expectations.
The 2020 Spike Above 1.40
The clearest recent example of USD/CAD breaking through 1.40 was in March 2020, during the early phase of the COVID-19 crisis.
- On March 17, 2020, the rate jumped from ~1.3964 to 1.4175.
- On March 18, 2020, it closed as high as 1.4496.
That period marked the only time in recent memory where USD/CAD stayed above 1.40 for more than a few days. During that episode, it lasted a total of about 15 trading days above 1.40 before reversing downward.
After that, the rate eventually fell sharply — by June 1, 2021, it had descended to about 1.2040.
Given that history, 1.40 is not a “ceiling,” but it is a psychologically and technically rare trading region. Crossing it can trigger both caution and aggressive conversion interest.
Behavior Since
Since that historic 2020 episode, USD/CAD spent much time well below 1.40. It has taken years to climb back toward that threshold. The fact that we are now at 1.40 again is notable. It suggests sustained pressure on the Canadian dollar relative to the U.S. dollar.
As of recent months, USD/CAD has ranged around 1.38–1.40 per various sources.
Why 1.40 Is a Sensible Threshold for Currency Conversions
Given your strategy, converting USD to CAD when CAD is relatively weak (i.e. you get more CAD per USD), 1.40 offers several advantages:
- Margin over normal rates
Because the long-run “normal” is in the 1.20–1.30 range, converting at 1.40 is like getting a premium. Even if the rate later drifts lower, you are less exposed to regrets of poor timing. - Buffer against mean reversion
Exchange rates often oscillate. If you convert at a higher-than-average rate, you give yourself a cushion in case the rate falls again. You cannot time the market perfectly without a lot of luck. Historically, getting 1.4 or better should leave you with no regrets. - Psychological / technical significance
Round numbers like 1.40 tend to attract attention from traders, algorithms, and large institutional order flow. Crossing or breaking 1.40 may encourage momentum trades or shifts in positioning. (In fact, some commentary already suggests traders are watching 1.40 as a line in the sand.)
In other words, once broken, it can accelerate moves. - Opportunity to act before a reversal
Since spikes above 1.40 have historically been brief, waiting beyond 1.40 runs the risk of missing your “window.” If your life needs CAD in the future, it may be wiser to convert soon than risk the rate falling again.
Risks & Unknowns: What Could Push the Rate Higher or Lower?
Of course, no threshold is guaranteed. Here are key variables and risks to watch:
Political & Trade Policy Risks Affecting the USD to CAD Exchange Rate
You have seen the tension in U.S.–Canada relations building. If tariffs remain or intensify, it may suppress Canadian exports, reduce demand for CAD, and push USD/CAD higher. Conversely, any thawing of trade relations or favorable deals could boost CAD. The advancement of USD backed stablecoins could increase demand for dollars, pushing the USD/CAD FX rate further from the long-term average.
Monetary Policy Divergence & Interest Rate Differentials
A lot of currency movement is driven by the interest rate spread between the U.S. and Canada. If the U.S. keeps rates higher or is more hawkish than expected, USD may remain strong relative to CAD. If Canada cuts rates or signals a dovish stance, CAD could weaken.
Coincidentally, the Bank of Canada recently cut its key rate by 25 basis points to 2.50% in September 2025.
Commodities & Terms of Trade
Canada is commodity-dependent, especially on oil. When oil prices fall sharply, or global demand weakens, CAD can suffer. Conversely, stronger commodity prices tend to support the Canadian dollar.
Momentum, Speculation & Technical Levels
Once a level like 1.40 is breached, short-term trading flows may magnify the move (in either direction). Increases or reversals may be steeper than fundamentals alone would dictate.
Time Horizon & Reversion
Even if USD/CAD overshoots 1.40, over time you may see reversion toward trend. If you convert too early and the rate later improves further, you might regret not waiting. But then again, waiting too long risks the opposite.
Strategy Suggestions: How to Execute Without Overcommitting
Given the uncertainty, here are some strategies to manage timing and risk.
Laddering / Phased Conversion
- Decide on a target conversion amount (e.g. the CAD you expect to need in retirement).
- Break it into smaller tranches (e.g. thirds or quarters).
- Over a defined period (e.g. the remainder of 2025), convert one tranche each month so long as USD/CAD remains above your threshold (e.g. 1.40).
- If on a scheduled month the rate dips below threshold, you could skip, delay, or limit that tranche.
This approach captures the upside if the rate continues upward, but ensures you “lock in” portions in case the rate reverses quickly. The drawback is that if most of the move happens early, your later tranches may convert at lower rates.
Opportunistic Flexibility
While a regular schedule is tidy, maintaining flexibility can help. For example, if on your predetermined conversion day the rate plunges, you might delay execution (within your allowed timeframe) or reduce the tranche size. Conversely, if you see a sharp rally, you might accelerate a portion.
Tax & Capital Gains Considerations
- Because you must sell U.S. securities to raise USD cash before converting, the timing of sales affects capital gains realized.
- The larger the USD balance, the more significant the tax impact of selling at a gain.
- U.S. indexes lost about 3% on average on October 10, 2025. This reduces gains, but the U.S.-China trade war has intensified and a market downturn could continue, which could cause further fluctuation in currency rates.
- Therefore, your “effective exchange rate” should be weighed against the tax cost. A conversion that looks attractive purely on FX grounds may be less so after factoring in taxes.
- For smaller conversions, the tax drag is less of a deterrent; but for large sums, it is critical to ensure the FX “premium” justifies the tax hit.
Keeping Some USD Exposure
- You may not want to convert all your USD holdings. The U.S. market is deeper, more liquid, and offers more opportunities.
- If urgent converting of CAD is avoided, you preserve flexibility: if USD appreciates further, you benefit (for the USD portion).
- But you also must manage currency risk: if USD falls relative to CAD over time, your unconverted USD holdings lose purchasing power in Canadian dollars.
What to Watch
A few signs to watch in real time:
- Interest rate spreads and central bank forward guidance
- Oil / commodity prices (especially energy)
- Canadian export / trade data and U.S.–Canada policy headlines
- Technical breaks and momentum shifts around 1.40 (and round numbers more broadly)
