Expert Predicts Canadian Dollar Will Remain Weak Through 2025
The experts predict that the Canadian dollar will remain weak at least until the end of this year, with a potential rebound in 2025.
Despite a slight increase on Monday to 71.18 cents US after hitting a four-year low last week, the loonie still lags behind its pre-pandemic levels and is down nearly four percent from September.
Katherine Judge, director and senior economist at CIBC Capital Markets, anticipates that the Canadian dollar will stay around current levels for the rest of the year.
“We haven’t seen these levels in a long time. I think we have certainly breached a level that is worrisome,” Judge stated, citing various factors contributing to the uncertainty in the coming months.
The weakening of the loonie aligns with the U.S. dollar’s surge following the re-election of former president Donald Trump, strengthening against not just the Canadian dollar but also several other currencies.
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If tariffs are put in place, there is potential for the Canadian dollar to decline further,” Judge noted.
“However, if negotiations prevent the implementation of tariffs, we could see weakness in the short term with recovery next year, which is our base scenario,” she added.
The loonie’s weakness is also attributed to the interest rate disparity between Canada and the U.S.
As Canada’s economy lags behind its southern neighbor, the Bank of Canada has cut interest rates more rapidly to prevent a recession.
Depending on Trump’s actions as president, the interest rate gap between the two countries may widen further.
“The concern is that if tariffs hit the Canadian economy hard and exports weaken, the Bank of Canada may need to further reduce rates to support the domestic economy,” Judge explained.
“Currently, the specifics of the tariffs are unknown. Given the integrated supply chains between the U.S. and Canada, it may not be beneficial for all U.S. businesses to impose tariffs on Canadian goods,” she added.
While a weaker loonie can benefit Canadian exporters to the U.S., it can negatively impact importers and raise travel costs for Canadians.
Despite winners and losers on both sides due to currency fluctuations, Judge suggested that the loonie’s current low value is skewed too far in one direction.
“You want the Canadian dollar to be low enough to attract investments, create job opportunities, and maintain competitive wages, but not so low that it leads to inflation,” she concluded.
