As inflation and the value of big commodities continue to change, they affect the value of the Euro compared to the Canadian dollar. Today, the value of 1 Euro is equivalent to 1.31 Canadian Dollar. However, the exchange rate is dynamic and can change anytime.
The Euro is a stronger currency because of political stability in European countries, steady prices and inflation, and economic growth in its countries. For example, the better France and Italy’s economies compared to Canada’s, the higher the euro value.
This article will look at the factors affecting the value of currencies and their current values. That will help you understand the difference between the Euro and Canadian dollar. We will also look at the purchasing power of each currency.
Let us get straight into it.
Currency values are set depending on their supply and demand. Since the demand keeps changing, it causes instability in currency exchange rates, which shows how much you can get after exchanging one currency with another.
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The value of a country’s currency compared to other currencies is vital to investors as they use it to know the best investment areas. For example, Canadians can engage in more European investments when the Canadian Dollar value is lower than the Euro.
Some factors that affect the value of the Canadian dollar compared to Euro are;
Inflation is a significant determinant of a country’s value of the currency. Countries with increasing inflation suffer currency depreciation. When inflation exceeds expected levels, the Central Bank raises the interest rates to subdue it.
Inflation also affects the purchasing power of a currency. For example, you require one unit of currency to buy a plate in a country with low inflation and hundreds or thousands of units to buy the same item in a country with high inflation.
Since the Euro is stronger than the Canadian dollar, it has a higher purchasing power. This is because one unit of the currency is stronger than one unit of the Canadian dollar, so that you can buy more items with one Euro than with one CAD.
Countries with healthy economies have stronger currencies than those with struggling economies. For example, a country with a low unemployment rate has a stronger economy. This is because the citizens have enough money to spend and invest, strengthening the economy.
The stronger a country’s economy is, the more they attract foreign investors. It strengthens the economy and increases currency exchange rates.
A politically stable country is peaceful, a major attraction for local and foreign investors. New investment in a country creates jobs and leads to a stronger economy. Political stability can also affect financial policies, which affect a country’s exchange rates.
A country with a politically unstable government has a less stable economy and a lower currency value. This is due to fewer or no investments, and the citizens could suffer poor financial policies.
Government policies on a country’s economy can make or break its currency. Governments have the power to manipulate exchange rates, and they do so by using different tools to modulate currency exchange rates, adjust interest rates, and print money.
The government will manipulate exchange rates to ensure cheaper credit, higher economic growth, and more investments. However, this creates a difference between currencies.
Countries borrow money to finance economic growth. However, due to corruption in some countries, the borrowed money gets lost in the hands of thirsty leaders, hence not performing the intended purpose.
If any country’s debt exceeds economic growth, it causes inflation. This reduces foreign investment causing devaluation in the currency. Some countries print money to pay off their debt, causing more inflation.
Once you know the factors affecting currency values, you can easily understand the differences between the Canadian dollar and the Euro. Although the Canadian dollar is stronger than other currencies, it is weaker than the Euro.
The difference in exchange rates is an advantage to Canada because they gain more from exports. This helps the citizens to diversify market opportunities and get better gross margins.
The Euro has a higher value than the Canadian dollar because the European Central Bank, ECB, which sets European’s monetary policy, is independent of the national government.
This is unlike other countries whose monetary policies get influenced by the government. These governments can impose a policy like printing more money to pay debts, leading to inflation.
A stronger currency can have benefits and disadvantages for a country. For example, if Canada exports more to European countries, they earn more because the Euro is worth more than the Canadian dollar.
However, imports to Canada become more expensive because the citizens have to pay more than when buying items in Canada. Let’s examine the pros and cons of having a stronger euro than the Canadian dollar.
Business people with companies in European countries get more profits. First, they make more sales because more people can buy. Since the investors get paid in Euros, this translates to more Canadian Dollars.
Canadians who export items to Germany, France, or Italy get more profits than those who export to countries with lower-value currency. This is because they get paid in Euros which has a higher value than the CAD. So, the traders get more Canadian dollars from their trade during a foreign exchange.
Since tourists can exchange their Euros for more Canadian dollars, the value of goods and services becomes more affordable. Therefore, Canada gets more tourists improving the tourism sector and boosting its economy.
Cons
Although Canadians benefit from having a stronger Euro than the Canadian dollar, there are disadvantages. Some of them are;
If the country relies on a commodity from European countries, importing it becomes expensive. For example, Canadians will pay more for a BMW or Audi imported from Germany because of the high dollar-to-euro exchange rates.
An increase in import prices can affect Canada’s market, especially those imported from Europe. As a result, the sellers increase selling prices, discouraging buyers, leading to lower sales and a fall in business.
Canadian investors in Germany and Italy get profits because of the country’s stronger currency, and the opposite applies to European investors in Canada. This is because they are paid in CAD, which has a lower value, meaning that after exchange rates, they will get fewer Euros.
Fewer profits for foreign investors can discourage them, leading to the transfer of their business to other countries. It also discourages new investors from coming to Canada, slowing the economic growth.
If Canada has a debt from Europe, it will pay more. This tempts most governments to print money to pay the debt, causing inflation in the country. Inflation leads to an increase in living costs, making it harder for the citizens to make their ends meet.
Factors like political stability, economic health, and inflation increase the value of the Euro compared to the Canadian dollar. Canadians can benefit from the higher euro value from exports and investing in European countries, but they suffer high imports.
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