The Canadian dollar, the loonie, continues to struggle against the U.S. dollar, recently falling below 70 cents. This downward trend has accelerated dramatically, particularly with U.S. President Donald Trump’s confirmation on March 3, 2025, of new tariffs set to take effect on March 4, 2025. Analysts are warning of perilous repercussions for the loonie, forecasting it could reach historic lows with these tariffs.
Following the announcement, the loonie was reported trading at approximately 68.80 U.S. cents, representing its weakest mark since early February. It has suffered losses for seven consecutive trading sessions, and forecasts indicate continued weakness amid the expectations of increased tariffs on Canadian goods. Trump announced on social media earlier this week his intent to impose 25% duties on Canadian imports, excluding energy products, sending shockwaves through financial markets.
According to Stephen Johnston, private equity manager at Omnigence Asset Management, such tariffs would exacerbate existing structural weaknesses of the Canadian dollar. “The dollar is structurally weak. We have high taxes and poor growth and an antagonistic regulatory environment as far as capital investment,” Johnston stated. He believes the tariffs could cause the loonie to spiral downwards significantly, possibly to levels not seen for decades.
Historically, the loonie reached its all-time low of 61.79 cents U.S. back on January 21, 2002, when it cost approximately $1.62 to buy one U.S. dollar. While Johnston concedes we may not see such lows immediately, the impact of widespread tariffs could resurrect fears of devaluation and inflation. He commented, “I think it would hit historic lows.”
The financial community is deeply concerned. Markets had previously assumed tariffs would either be delayed or watered down significantly, but now traders are adjusting to the reality of these measures. Karl Schamotta, chief market strategist at Corpay, remarked on the recent developments, stating, “It sends financial markets reeling on the prospect of new economic barriers in North America.”
Canada’s economy is intricately linked with the U.S., sending around 75% of its exports across the border, including oil. The anticipated tariffs come as weekly drops have been reported for crude oil futures, which fell nearly 2% to $68.37 per barrel. The outlook for Canadian oil exports could dim as tariff-related pressures mount.
Adding to the distress, the latest data from the S&P Global Canada Purchasing Managers' Index revealed concerning numbers for the manufacturing sector, dropping sharply from 51.6 to 47.8, indicating the risk of recession. This decline signifies the first time the index has dipped below the 50-point mark since August 2024, eliciting fears over trade prospects and economic growth.
Miro Svoboda, investment advisor at Sonora Wealth Group, also expressed his worries, stating, “Tariffs could fuel inflationary pressures, raising concerns over economic growth.” This sentiment echoes throughout the analysis of foreign investment flows, which could also suffer amid tariffs when businesses reconsider their positioning within the North American market.
The Canadian government is not remaining passive. Officials are preparing retaliatory tariffs and punitive economic actions against U.S. consumers should the expected tariffs go through. The financial sector is already observing adjustments, with Canadian bond yields declining as investors anticipate moves from the Bank of Canada aimed at countering the currency’s volatility.
The impending tariffs are poised to act as one of the worst economic events for Canada, potentially triggering significant challenges for its economy. Canada’s fiscal and current account deficits, alongside persistent high taxation rates, have only compounded the issues surrounding the loonie’s decline.
Looking forward, analysts have differing views on how the situation might stabilize. Some speculate businesses may adapt through supply chain diversification, potentially mitigating some of the adverse impacts if the tariffs go through. Nonetheless, the broader economic outlook remains grim for the Canadian dollar, and how it navigates these turbulent waters is uncertain.
Overall, the combination of tariffs set to come and existing economic questions puts the Canadian dollar on shaky ground. The situation calls for close observation, not just from Canadian citizens but global economists who understand the interconnected web of international trade. The countdown to March 4 is more than just the onset of tariffs; it marks a pivotal moment for Canada's economy and its currency's future.