Currency trading is somewhat unusual in that the price reflects what is happening in two different currency zones. If we want to discuss how currencies relate to inflation, we should keep in mind that we should be talking about the inflation rate in the two currencies. For example, if the inflation rate in Canada is 2% and the inflation rate in the United States is also 2%, the effect of inflation on the Canada-U.S. exchange rate should cancel out. For developed countries (with floating exchange rates), currency values largely reflect what is happening with capital flows, and to a lesser extent, trade flows. The ... (full story)