Economists are warning of more troubled times for the Canadian dollar as it looks set to remain weak through 2025. The Canadian dollar, affectionately known as the loonie, has been trading below US$0.70 for several weeks, prompting market watchers to predict it could fall even lower.
Robert Levy, managing director of Border Gold, highlighted the significant interest rate discrepancy between Canada and the United States as one of the key factors influencing this trend. According to Levy, "The first thing to point to is the difference between interest rates in Canada...and the very simple fact if you’re an investor, you can get about, more than a per cent more, putting your money safely in the United States versus Canada.” This scenario has contributed to immediate weakness on the Canadian dollar.
Another different but impactful concern is the economic outlook for Canada amid trade uncertainties linked to the recently elected President Donald Trump. The election of Trump has raised concerns about potential tariffs on Canadian goods, which adds to the uncertainty surrounding Canada's economic prospects. Levy noted, “How do businesses compensate for [tariffs]? is through a weaker exchange rate.”
What does this mean for Canadian consumers and businesses? While the low loonie can benefit exporters, it also threatens to make imported goods more expensive. Karl Schamotta, chief market strategist with Corpay, described the current situation as creating "a perfect storm" for Canada, noting several contributing factors. "We’ve had, you know, oil prices flatlining for almost a decade. We have the U.S. economy performing amazingly well, and the U.S. dollar rising against virtually every other major currency,” he mentioned.
Schamotta elaborated on Canada’s economic challenges, highlighting weak productivity and high household debt, which has left the economy vulnerable. He pointed out, “We have an economy too dependent on real estate,” raising concerns about how the health of this sector can impact the broader economy.
Notably, rising interest rates have exacerbated borrowing costs for Canadian consumers. The Bank of Canada has responded by reducing interest rates to relieve some of this pressure. This, Levy believes, might provide households with "some relief” but warns it might take time to stabilize the overall economy.
Looking forward to 2025, Schamotta optimistically predicts, “The loonie will claw its way back,” but notes this recovery will depend largely on the housing sector, which has significantly driven Canada’s economic performance. The expected increase in household spending could lead to some recovery for the currency.
With strong consumption patterns expected to resume if economic conditions stabilize, the Canadian dollar might begin to recover. Still, the prolonged weakness, exacerbated by geopolitical tensions and economic differentiation with the U.S., may contribute to increasing prices for goods both imported and locally produced.
Market analysts agree on one point: much will depend on the government's actions and decisions post-Trump's inauguration. With trade policies and regulations still uncertain, how Canada positions itself economically will be pivotal for the loonie's fate. For now, the Canadian dollar is facing significant hurdles, and Canadians are advised to brace for more expensive goods and fluctuated economic stability.
