Strong Beginning, Lingering Concerns
As 2024 kicked off, the Canadian dollar seemed to be on relatively solid footing, hovering around 74 cents U.S. (1.35 CAD). A moderate rebound in oil prices—the lifeblood of Canada’s export sector—provided some tailwinds early in the year. Meanwhile, the Bank of Canada, after several interest rate hikes in 2023, appeared to be aiming for a “soft landing,” keeping inflation near its 2% target.
By mid-year, the loonie even flirted with the 76–77 cent range (1.32–1.31 CAD), fueled by steady employment numbers and decent consumer spending. Traders felt cautiously optimistic: the housing market had cooled but not collapsed, and companies in sectors like tech and mining were posting healthier-than-expected earnings.
Late Summer and Autumn Unease: Rate Cuts and Trump Tariff Threats
As summer wound down and fall approached, the Bank of Canada made another rate cut in late August, moving from 4.25% down to 4.00%. Although many saw it as a cautious maneuver to spark growth against global economic headwinds, rate cuts tend to dim the appeal of a currency for investors seeking higher yields. This weighed on the loonie, which slipped closer to the mid-74 cent range (1.35 CAD) by early autumn.
Soon after, worries about renewed trade tensions in the U.S. began to rear their head. President-elect Trump floated the idea of a 25% tariff on all Canadian goods. This alone was enough to make some investors think twice, pulling back from the loonie and piling into the U.S. dollar. By November, it was clear that international markets had taken note, leaving the Canadian dollar under increasing pressure.
December Slump: Fresh Lows and ‘Downside Protection’
Then came December, when the currency’s troubles really picked up steam. The Canadian dollar hit new lows, dipping below 69 cents U.S. (1.44 CAD) before managing a small bounce. But by then, markets were abuzz with talk of traders scrambling for “downside protection” against an even weaker loonie. Here’s what caused the slide:
- Tariff Threats: Speculation about a new round of tariffs from Washington continued to rattle market confidence. Even a whiff of policy change affecting cross-border trade can send ripples through Canada’s export-heavy economy.
- Another Rate Cut: In an effort to keep the economy afloat, the Bank of Canada once again trimmed rates in December—from 4.00% to 3.75%. While this might help businesses and consumers at home, it lowers the loonie’s allure in international markets. Investors looking for stronger returns or safer bets tend to move their money elsewhere when rates drop.
- Global Slowdown Fears: With the U.S. potentially easing off the gas pedal in terms of consumer demand, and lingering uncertainties in Europe and Asia, Canada’s growth prospects for early 2025 suddenly looked shakier than they did over the summer.
What Does This Mean for 2025?
Heading into the new year, analysts are split on the loonie’s fate. On one hand, some see this dip as a short-lived overreaction, anticipating that Canada’s core economic fundamentals—stable financial institutions, solid natural resource revenues, and a relatively low unemployment rate—could pull the currency back into the mid-70 cent range (1.33–1.34 CAD) if trade tensions ease.
On the other hand, a more pessimistic camp warns that if Canada can’t secure better trade terms with the U.S., or if global commodity prices take another tumble, the loonie could stay under pressure well into the new year. Additional rate cuts might also be on the table if the economy shows signs of slowing further, adding more downward momentum to the currency.
Final Thoughts
In a nutshell, 2024 was a bit of a roller-coaster ride for the Canadian dollar. Despite a fairly promising start, the last few weeks of the year delivered a reality check. Lower rates, the specter of fresh tariffs, and simmering concerns about global growth—not to mention an uncertain federal government—all converged in December, leaving the loonie languishing near its lowest multi-year levels. As we enter 2025, all eyes will be on the Bank of Canada’s next moves—and whether trade relations with the U.S. improve or sour further, or if Canada is destined to be the 51st state.
No matter how you view 2024, the loonie’s December swoon underscores one key lesson: in a world led by a Trump administration and a weakening Canadian economy, the outlook for the loonie is darker than it was at the beginning of 2024.
The Canadian dollar is currently trading at 1.43708 CAD against the US Dollar.
