Economists are warning there could be more trouble for the Canadian dollar in 2025.
For the last few weeks it has been trading below US$.70 and some market watchers say it could go lower.
“The first thing to point to is the difference between interest rates in Canada, in the United States, and the very simple fact if you’re an investor, you can get about, more than a per cent more, a percentage point more, putting your money safely in the United States versus Canada,” Robert Levy with Border Gold told Global News.
“So that’s one thing with immediate weakness on the Canadian dollar. Another story that’s really front of mind, what’s going on with incoming president-elect (Donald) Trump and trade uncertainty that weighs on the loonie, just the economic outlooks for Canada versus the United States.”
Levy said with the uncertainty going into 2024, investors are voting for safety and the economy that is performing better.
He added that the Bank of Canada is hoping the diverging interest rate will spur investment but it could take a few years to stabilize and that is what is affecting some of the economic outlooks.
While a lower loonie does benefit exporters, the threat from Trump to impose 25 per cent tariffs on all Canadian-made goods imported into the United States, the uncertainty remains high.
“How do businesses compensate for that is through a weaker exchange rate,” Levy said.
“So, you know, as long as there is that uncertainty cloud above the Canadian economy here in the near term, that puts downward pressure on the loonie.”
Karl Schamotta, chief market strategist with Corpay described it as a “perfect storm” hitting the Canadian dollar.
“We’ve had, you know, oil prices flatlining for almost a decade. We have the U.S. economy performing amazingly well, the U.S. dollar rising against virtually every other major currency in the world. And you know, in Canada here we have weak productivity,” he said.
“We have an economy that is far too dependent on real estate and we have high household debt. And so all of that is setting the stage and putting Canada in a very vulnerable position.”
Schamotta said Canadians will see goods imported or grown in the U.S. will be more expensive.
He said he thinks following Trump’s inauguration in 2025, the loonie will claw its way back.
“The big deal here in Canada, of course, is that the housing sector really drives the economy and has driven a large part of the downturn over the last couple of years,” he said.
“As interest rates have gone up, that has increased the borrowing costs for most Canadian consumers. And as a result, they haven’t had as much money to spend on the rest of the economy. And so as the Bank of Canada has cut interest rates, that has given those those households some relief.
“That relief is likely to, you know, grow a little bit in the year ahead.”