When the Bank of Canada cut the interest rate the money supply increased because of more money being lent out due to cheap lending rates. A bigger supply of money means that it is less valuable because it's easier to get your hands on.
To explain the devaluations over the past 2 months or so, the energy sector has been hard hit and is one of Canada's main exports and sectors for foreign direct investment. When we export a good with less value on the global market, international buyers have to buy less Canadian dollars to buy our goods which drives down the demand for Canadian money. Equivalently, lower oil prices lower FDI inflows for projects in the oil sands. Less FDI means that less Canadian money needs to be exchanged for some other money lowering demand.
So there you go, in a nutshell why the Canadian dollar has devalued.
As per why the American dollar is strengthening, that's a more interesting question. And I don't have the answer off the top of my head.
|