paypal wont convert the currency on a country by country basis.
You can change paypal to send the transaction using CAD instead of USD by editing the code in the webassist/plugins/shopping_cart/process_transaction.php file
. Look for the following line:
$PP_DirectPayment_required[0][$nextIndex] = "Currency";
$PP_DirectPayment_required[1][$nextIndex] = "USD";
and change it to:
$PP_DirectPayment_required[0][$nextIndex] = "Currency";
$PP_DirectPayment_required[1][$nextIndex] = "CAD";