As of November 15, 2024, the Canadian dollar, commonly referred to as the loonie, has fallen to 70 cents against the U.S. dollar for the first time in over four years. This significant decline is attributed to a combination of factors, including rising food prices and a sluggish economy. Oil prices have also seen a drop, falling from $86 to $67 per barrel, further impacting the Canadian economy. [706feb1c]
The economic situation is dire, with Statistics Canada reporting that GDP per capita has shrunk in eight of the last nine quarters, now standing at $44,400 compared to $66,300 in the U.S. This disparity highlights the growing economic challenges faced by Canadians. The Trudeau government has responded to these challenges by increasing taxes, including payroll taxes and a carbon tax, which many argue exacerbates the financial strain on average Canadians. [706feb1c]
In a broader context, the loonie's decline is compounded by the potential economic policies of the incoming Trump administration, which are expected to boost the U.S. economy. This could further worsen Canada's economic position, as the country relies heavily on its trade relationship with the U.S. [706feb1c]
As of November 13, 2024, the loonie had already dropped to a four-year low of 71.4 U.S. cents, raising concerns among economists. Sarah Ying from CIBC Capital Markets noted that the dollar is down 1.1% since Donald Trump's election, reflecting ongoing trade tensions and the potential for further interest rate cuts by the Bank of Canada. [c41bcd39]
Karl Schamotta, chief market strategist at Corpay, warned that the loonie could decrease by an additional 2-3% if U.S. inflation continues to rise. The Bank of Canada recently cut interest rates by 50 basis points on October 23, 2024, bringing the key rate down to 3.75%. If further cuts occur, rates could fall to as low as 1.5%, contrasting sharply with the U.S. Federal Reserve's recent cut to its rate, now at 4.5%-4.75%. [c251b81c]
The potential for Trump's administration to impose a 10% tariff on all goods has raised concerns about Canadian exports, which could see a reduction of nearly 5% by early 2027. Analysts suggest that the loonie's decline may persist if further rate cuts are anticipated. [32e0347d]
Despite these challenges, a weaker loonie could benefit tourism and exports by making Canadian goods more competitive abroad. However, it also increases costs for Canadians traveling internationally and raises prices for imported goods. The current interest rate spread between Canada and the U.S. is 100 basis points, which could widen if the Federal Reserve continues to cut rates. [32e0347d]
Looking ahead, Schamotta expects a potential rebound of the loonie to 74 cents in 2025, particularly after a possible rally following the inauguration of the new U.S. administration. The interplay between U.S. fiscal and trade policies will be crucial for future currency stability, especially since Canada sends approximately 75% of its exports to the United States. [a71b5d4c]