CAD/USD Is Moving: Here’s the TFSA Fix

The CAD/USD rate moves for the same reason your mood moves on a Monday morning: a bunch of little forces pile up, then one headline tips it. When the U.S. dollar strengthens on risk-off days, Canada’s dollar often gets pushed around. Oil helps Canada when it rises, and it hurts when it falls. Rate expectations matter too, as traders constantly compare where the Bank of Canada sits versus the U.S. Federal Reserve. In early February 2026, you could see all of that at once, with CAD getting tugged between global risk appetite, oil moves, and shifting views on where Canadian rates go next.

A TFSA fix

So, what’s the Tax-Free Savings Account (TFSA) fix while CAD/USD bounces around? First, stop treating currency like a casino side bet. Most investors lose money trying to “time” it because the big moves happen fast and the reasons change mid-story. The real goal is simple: keep your TFSA invested in assets that can grow, while reducing the chance that currency swings dominate your returns in any single year.

Second, spread your exposure on purpose. If your TFSA holds only Canadian stocks, you already carry a quiet currency risk because Canada’s market leans hard into financials and energy, which tend to rise and fall with global cycles. Adding U.S. exposure can diversify the engines that power your returns. But if you worry that a stronger Canadian dollar could shave off gains from U.S. stocks, you can use currency-hedged exposure to keep the focus on the business results, not the exchange rate.

Third, use a rules-based approach so you don’t overreact to every move. If CAD strengthens, keep buying on schedule. If CAD weakens, keep buying on schedule. That’s the whole trick. Regular contributions and a diversified core holding can do more for your long-term TFSA outcome than any one clever currency call. This is especially true in 2026, where trade headlines, rate talk, and commodity swings can flip the CAD/USD story more than once.

Consider VSP

That brings us to Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP). It gives you exposure to the S&P 500, but it hedges the U.S. dollar back to Canadian dollars. In plain language, it aims to let you own big U.S. companies without making your results depend as heavily on what CAD/USD does next. That feature can feel boring, and boring is often exactly what a TFSA needs when markets get jumpy.

The recent numbers show why VSP has stayed on Canadian investors’ short lists. Over the past year, it’s returned about 13% at writing, which tells you the U.S. large-cap engine has done real work even after a noisy macro backdrop. It also keeps costs low. Vanguard’s own disclosures list a 0.09% management expense ratio (MER) for VSP, which matters because fees quietly compound in the wrong direction if you hold a fund for years.

Looking ahead, the outlook depends on what you want VSP to do in your TFSA. If you want your U.S. exposure to behave more like “stocks first, currency second,” VSP can fit. The valuation you’re buying is basically the S&P 500’s valuation, because VSP tracks that index rather than picking stocks. That means you should expect periods where U.S. large caps look pricey and periods where they look reasonable, but you’re not paying active-manager fees for the privilege.

Bottom line

VSP could be a buy for others who want a simple, low-fee TFSA fix while CAD/USD keeps moving, especially if currency swings stress them out more than stock swings. It could also be the wrong choice if you actually want U.S. dollar exposure as a hedge, because the hedging can remove the benefit you might get when the CAD weakens. Either way, the real win is the behaviour change: stop chasing the currency, pick a structure you can stick with, and let the TFSA do what it does best.

The post CAD/USD Is Moving: Here’s the TFSA Fix appeared first on The Motley Fool Canada.

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More reading

• Gold and Silver Are Sliding: 1 TSX Stock to Watch
• A Simple Hedge for Canadians as Markets Get Weird
• 1 Magnificent TSX Dividend Stock Down 41% to Buy and Hold for Decades
• What’s the Average TFSA Balance at Age 30 in Canada?
• CRA: Here’s the TFSA Contribution Room for 2026, and Why Now is the Best Time to Use it

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.