As of December 19, 2024, the Canadian dollar has plunged to its weakest level since 2003, with US$1 now worth C$1.444, translating to C$1 equaling US$0.69. This significant decline is attributed to a divergence in economic outlooks between the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed). While the Fed recently cut rates by 0.25 points, the BoC has made substantial cuts to its key interest rate, reflecting contrasting economic strategies. [4ab9cddf]
The federal government has also reported a staggering $61.9 billion deficit for the 2023-2024 fiscal year, exceeding its target by over $20 billion. This financial shortfall, combined with the resignation of Finance Minister Chrystia Freeland from Prime Minister Justin Trudeau's cabinet, has raised concerns about the stability of the Canadian economy. [647f1e34]
Economic experts like Karl Schamotta, chief market strategist at Corpay, have noted that the loonie has been on a downward trajectory since the summer of 2021, primarily due to stagnant Canadian economic growth compared to the U.S. The loonie's depreciation has been exacerbated by rising inflation and increased import costs, affecting everyday Canadians through higher prices for gasoline and food. [d32e4afd]
The current political uncertainty in Canada, particularly following Freeland's resignation, further complicates the economic landscape. Analysts are expressing growing concern about the future of the Canadian dollar, especially with fears of potential tariffs on imports that could be implemented by U.S. president-elect Donald Trump. [647f1e34]
Historically, the loonie has spent only about four years at such weak levels in the past 40 years. While a weak loonie may attract foreign investment, it hampers domestic productivity, creating a challenging environment for Canadian businesses. [4ab9cddf]
Looking ahead, FX strategist Thierry Wizman believes there are opportunities for the loonie to recover despite the current political turmoil. He suggests that a conservative-led government in Canada could positively impact the loonie, especially if elections occur earlier in April or May 2025. Wizman argues that earlier elections would foster a friendlier trade negotiation environment with the U.S., whereas delayed elections could negatively affect the market. [6b871307]
While some experts like Schamotta anticipate a potential rebound of the loonie to 74 cents in 2025, the immediate outlook remains uncertain. The interplay between U.S. fiscal policies and Canada's trade relationship will be crucial in determining the future stability of the Canadian dollar. [a71b5d4c]