March 14, 2025

Chart of the Week: The Canadian dollar - Same result, different path

We all know the Canadian dollar hasn’t exactly been a star performer. A key storyline for the loonie has been that it’s been a victim of U.S. dollar strength. That is, it wasn’t just that the Canadian dollar was weak, it was that the U.S. dollar was strong against a broad basket of currencies. Canada was along for the ride, as shown in our Chart of the Week.

That story has shifted in recent weeks. The US dollar has been weakening against a broad basket of currencies. However, it has appreciated against the Canadian dollar, rising to C$ 1.44/US$ as of yesterday’s close. People who don’t trade currencies for a living often think of the inverse of this - 1.44 translates to US$ 0.69/C$.

Our interpretation is that markets see: 1) signs of trouble in the U.S. economy and are wagering more bets that the Federal Reserve will need to cut; 2) capital is moving to markets like Europe because of expected U.S. weakness; and 3) Canada will be disproportionately hit by the trade war and the Bank of Canada will need to cut further (domestic policy uncertainty with a pending federal election likely factors in as well).

Our current forecast  is that the CDN dollar will average 70.5 U.S. cents this year and 71.5 cents next year.