United States dollar behavior: A multiple regression approach in forecasting United States currency exchange rates against Canadian currency

The purpose of this study is to explore the impact of the differential of interest rates, the domestic-foreign expected inflation differential, and the foreign trade on the U.S. exchange rate. The choice of Canada as the foreign country is motivated by its economic and financial importance and its geographic proximity. Daily data from January, 1995 through December, 2004 is used. The multiple regression model is utilized to forecast the U.S. exchange rate against the Canadian Dollar. The study examines the behavior of the U.S. exchange rate in the medium run and focuses on economic fundamentals.