Help me understand currency exchange forecast jargon
December 6, 2022 1:17 PM Subscribe
I live in Canada, but my income is now in US dollars. I have to decide when to pull the trigger and exchange USD to CAD at the most favourable exchange rate (i.e., sell USD for the highest amount of CAD). But I don't really understand the 'market watching' lingo...
Basically, I'll go to a website like DailyFX.com, and the only question I'm seeking input on is: "Does it look like the US dollar is getting stronger or weaker relative to the Canadian dollar over the coming days? Should I exchange money now, or wait?"
But I don't know how to interpret the stuff I read there. For example:
- USDCAD is trading in a bullish trend according to the monthly time frame.
[What does bullish mean, as opposed to bearish? And is the order of "USDCAD," as opposed to "CADUSD," significant?]
- USD/CAD: Net long 32%, net short 68%
[What does long and short mean?]
Basically, I'll go to a website like DailyFX.com, and the only question I'm seeking input on is: "Does it look like the US dollar is getting stronger or weaker relative to the Canadian dollar over the coming days? Should I exchange money now, or wait?"
But I don't know how to interpret the stuff I read there. For example:
- USDCAD is trading in a bullish trend according to the monthly time frame.
[What does bullish mean, as opposed to bearish? And is the order of "USDCAD," as opposed to "CADUSD," significant?]
- USD/CAD: Net long 32%, net short 68%
[What does long and short mean?]
ssg is right - no prediction about floating currency exchange rates is worth anything; the US Dollar and Canadian Dollar might as well be random as far as you're concerned. Exchange when it's convenient or necessary but otherwise just accept that you are exposed to foreign exchange risk.
On a side note, you can remember bull vs bear because that's how they attack - a bull attacks by pushing its horns upward, while a bear attacks by swiping its claws downward. So a bull market is one that is going up, while a bear market is one that is going down.
posted by Hatashran at 2:12 PM on December 6, 2022 [1 favorite]
On a side note, you can remember bull vs bear because that's how they attack - a bull attacks by pushing its horns upward, while a bear attacks by swiping its claws downward. So a bull market is one that is going up, while a bear market is one that is going down.
posted by Hatashran at 2:12 PM on December 6, 2022 [1 favorite]
If you read the business section in Canadian newspapers you'll (probably) occasionally see references to trends in the exchange rate and possible upcoming changes expected in light of statements made by the Bank of Canada regarding any plans it may have to change interest rates or buy/sell currency.
Apart from that, I'd take a look at a long-term graph of the exchange rate just to get a sense of what the situation today looks like in a larger context. (It looks pretty good to me.) And then make the transfer and resolve not to stress if you could have gotten an extra fraction of a percentage point by waiting, because that way madness lies.
posted by trig at 2:26 PM on December 6, 2022
Apart from that, I'd take a look at a long-term graph of the exchange rate just to get a sense of what the situation today looks like in a larger context. (It looks pretty good to me.) And then make the transfer and resolve not to stress if you could have gotten an extra fraction of a percentage point by waiting, because that way madness lies.
posted by trig at 2:26 PM on December 6, 2022
What everyone else says. Day to day changes are unpredictable.
Much more important is minimizing the spread you're paying, since that extra 1 ~ 2% is hitting you every time. When I was doing this regularly, the best rates were from Transferwise (now Wise). The last place to transfer currencies is your local bank. HSBC was charging us ~3% each way. (well, really last place would be the currency exchange at the airport)
You should check what your credit card is charging - we happen to have a US card that only charges ~1%, so it's easier to make Canadian $ payments, and have the credit card bill us in US$.
posted by cfraenkel at 3:51 PM on December 6, 2022 [1 favorite]
Much more important is minimizing the spread you're paying, since that extra 1 ~ 2% is hitting you every time. When I was doing this regularly, the best rates were from Transferwise (now Wise). The last place to transfer currencies is your local bank. HSBC was charging us ~3% each way. (well, really last place would be the currency exchange at the airport)
You should check what your credit card is charging - we happen to have a US card that only charges ~1%, so it's easier to make Canadian $ payments, and have the credit card bill us in US$.
posted by cfraenkel at 3:51 PM on December 6, 2022 [1 favorite]
Open up a US dollar savings account at your Canadian local bank or credit union. Deposit your US pay there. Once a day check the bank's exchange rate. Eventually, you'll get a sense of where it typically sits, when it's going down, and when it's going up. I'm not saying you'll be able to predict the market, but you won't be caught too unaware when changes start to happen.
If you also start comparing that bank rate to the exchange rate mentioned on every business news report and general newscast (seriously, your local 6PM news report or the national nightly news will have a graphic showing the day's exchange rate, and the radio stations that report more than two news items a day will also mention it) you may find you won't even need to take the extra step of closely following the bank rate. You'll train yourself to listen to whatever news report you follow and you'll just take it in and make note when the rate starts to go up or down, and you'll develop a pretty good guetimate of what the spread will be (the difference between the posted exchange rate and the exchange rate you get at the bank).
For the most part the bank shouldn't charge you anything to transfer between your US account and the Canadian one. If it does, go to another bank.
If possible, keep the money in the US dollar account if the exchange rate is bad, and transfer it when the rate improves. That's honestly the best you can do. (If it's your only source of income and you don't have a short-term savings cushion, you won't really have a choice, and you'll just have to convert it to Canadian as soon as you need to start paying bills.)
And yes, you probably won't get the best exchange rate doing this at the bank, but it will be the simplest way of handling the situation as you won't have to transfer money into and out of one institution to a foreign exchange place and back to your bank again.
posted by sardonyx at 4:19 PM on December 6, 2022 [2 favorites]
If you also start comparing that bank rate to the exchange rate mentioned on every business news report and general newscast (seriously, your local 6PM news report or the national nightly news will have a graphic showing the day's exchange rate, and the radio stations that report more than two news items a day will also mention it) you may find you won't even need to take the extra step of closely following the bank rate. You'll train yourself to listen to whatever news report you follow and you'll just take it in and make note when the rate starts to go up or down, and you'll develop a pretty good guetimate of what the spread will be (the difference between the posted exchange rate and the exchange rate you get at the bank).
For the most part the bank shouldn't charge you anything to transfer between your US account and the Canadian one. If it does, go to another bank.
If possible, keep the money in the US dollar account if the exchange rate is bad, and transfer it when the rate improves. That's honestly the best you can do. (If it's your only source of income and you don't have a short-term savings cushion, you won't really have a choice, and you'll just have to convert it to Canadian as soon as you need to start paying bills.)
And yes, you probably won't get the best exchange rate doing this at the bank, but it will be the simplest way of handling the situation as you won't have to transfer money into and out of one institution to a foreign exchange place and back to your bank again.
posted by sardonyx at 4:19 PM on December 6, 2022 [2 favorites]
Most of the FTX websites are targeted to day traders, looking at trends and micro trends. You want something more along the lines of "should I refinance my mortgage now or wait a few months". I've never seen anything like that for exchange rates. You might be able to glean some of it by reading the business sections of newspapers, and see what the thinking is around interest rates in the US and Canada, which will have a big impact on exchange rates.
But really, market timing is hard if not impossible, and you're best off just making the conversion as you go along, and not second guess yourself.
posted by Winnie the Proust at 4:24 PM on December 6, 2022
But really, market timing is hard if not impossible, and you're best off just making the conversion as you go along, and not second guess yourself.
posted by Winnie the Proust at 4:24 PM on December 6, 2022
I second what cfraenkel says. You'd be much better off trying to optimize HOW you're transferring money (which bank/service, whether to use a credit card, etc.) in order to minimize fees rather than WHEN to transfer.
One basic principle is that since at least part of the fees are per-transfer, you should try to minimize the frequency you transfer money. You'd typically be better off if you can get by exchanging twice a year rather than every month.
posted by alidarbac at 7:30 PM on December 6, 2022
One basic principle is that since at least part of the fees are per-transfer, you should try to minimize the frequency you transfer money. You'd typically be better off if you can get by exchanging twice a year rather than every month.
posted by alidarbac at 7:30 PM on December 6, 2022
Best answer: I've been slowly moving money internationally for a few years for similar reasons.
In terms of using recent past behaviour to predict future performance, or guessing what may happen next because of the news reports, it was consistently not as I expected. So I just figured 'beating the average' was about as good as I could do.
So I did the math for average exchange rates over the last 12 months, and then also found the average for the past 5 years (which ended up being about the same).
So when I had to move money, I'd keep an eye on the daily rates for a while, and when it went above the long term average, I figured that was a good time to move, and when it was below the average rate, I'd try to wait of I could.
posted by many-things at 10:01 PM on December 6, 2022 [1 favorite]
In terms of using recent past behaviour to predict future performance, or guessing what may happen next because of the news reports, it was consistently not as I expected. So I just figured 'beating the average' was about as good as I could do.
So I did the math for average exchange rates over the last 12 months, and then also found the average for the past 5 years (which ended up being about the same).
So when I had to move money, I'd keep an eye on the daily rates for a while, and when it went above the long term average, I figured that was a good time to move, and when it was below the average rate, I'd try to wait of I could.
posted by many-things at 10:01 PM on December 6, 2022 [1 favorite]
Best answer: I work with FX daily and I support the reasoning of "keep an eye on trends but don't overly worry about it" and "exchange as infrequently as possible." Anything else leads to madness.
posted by gwydapllew at 5:16 AM on December 8, 2022
posted by gwydapllew at 5:16 AM on December 8, 2022
I subscribed to daily exchange emails from transferwise (now 'wise'). Years ago I used them for better exchange rates between USD/CAD, they seemed highly rated 5 years ago, but I don't know if that has changed. I was hoping after some years of seeing them in my inbox I'd get a feeling for the general rates over time, and honestly it just feels 'mostly the same' and 'generally random'. I didn't do the same as many-things, but that sounds like a great idea, and honestly I'd expect to see the same result from my own anecdata.
I was more worried about the exchange 'tax', which is why I used transferwise, it saved us an amount of cash worth the hassle. Secondarily we use the exchange from our Canadian credit union, but it is never as good as what transferwise/wise has advertised.
The most notable thing I've discovered is Canadian and American financial institutions have no knowledge or interest in how the other runs, which can cause some annoyance.
If you have not been referred to https://www.financialwisdomforum.org/ , you should check it out. Specifically of interest, from their wiki, https://www.finiki.org/wiki/Norbert%27s_gambit is germane to your interests, not that you would like to take your chances at it, but it is interesting regardless.
posted by BurnMage at 11:58 AM on December 8, 2022
I was more worried about the exchange 'tax', which is why I used transferwise, it saved us an amount of cash worth the hassle. Secondarily we use the exchange from our Canadian credit union, but it is never as good as what transferwise/wise has advertised.
The most notable thing I've discovered is Canadian and American financial institutions have no knowledge or interest in how the other runs, which can cause some annoyance.
If you have not been referred to https://www.financialwisdomforum.org/ , you should check it out. Specifically of interest, from their wiki, https://www.finiki.org/wiki/Norbert%27s_gambit is germane to your interests, not that you would like to take your chances at it, but it is interesting regardless.
posted by BurnMage at 11:58 AM on December 8, 2022
“Youcan remember bull vs bear because that's how they attack - a bull attacks by pushing its horns upward, while a bear attacks by swiping its claws downward”:
Alternatively: a bull charges, a bear hibernates
posted by charlemangy at 8:57 PM on December 12, 2022
Alternatively: a bull charges, a bear hibernates
posted by charlemangy at 8:57 PM on December 12, 2022
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Bull is upwards, bear is downwards. USDCAD is CAD per USD (~1.37 currently). CADUSD is USD per CAD (~0.73). But all this means is USD has been going up relative to CAD over the last month or so (as in, you get more CAD for each USD). Does it mean that it will continue to go up? Who knows!
Net long means you are betting that something will go up (and you'll make money if that happens), net short means you are betting that something will go down. So for whatever measure they are talking about, more are betting against the Canadian dollar relative to the US dollar than are betting for it. The implication is that more people think the Canadian dollar will go down than think it will go up. But I have no idea what they are measuring here. In reality, the net position overall is zero (for everyone who is betting that the US dollar will go up, someone else has to bet it will go down as someone else has to take the other side of that trade). The price of futures or options or whatever other derivatives are in play here will adjust with demand. I don't think this is useful information for you.
If your timeline is days, you are basically looking at semi-random fluctuations. This is not predictable and you are best off just exchanging the money whenever is convenient.
posted by ssg at 1:43 PM on December 6, 2022 [5 favorites]