For the first time since the start of the COVID-19 pandemic, the Canadian dollar has dipped below 0.70 USD in value.
According to Bloomberg data, the value of the Canadian dollar dipped from 0.7025 USD Monday night to 0.6982 USD Tuesday morning.
The last time the loonie fell below 0.70 USD was Mar. 20, 2020 when the economy was in freefall due to pandemic uncertainty and lockdowns shutting down commerce.
At the same time last year, the Canadian dollar was valued at 0.75 USD. According to Bloomberg, there was a 7.46% drop in value from the beginning of the year to the Tuesday low point.
Dismal as this is, the Canadian dollar is still far from its all-time low of 61.79 USD on Jan. 21, 2002.
This news comes after the abrupt resignation of Finance Minister Chrystia Freeland Monday, just hours before she was set to deliver the fall economic statement. The government’s financial update revealed a $62 billion deficit for the 2023-2024 fiscal year, a bounding leap over the so-called “guardrail” of $40 billion Freeland had set out earlier this year.
Canada is facing down more uncertainty with the incoming American president, Donald Trump, having threatened a 25% tariff on Canadian imports into the United States. Trump takes office Jan. 20.
Macdonald-Laurier Institute fellow Jack Mintz told True North in an interview that political instability can impact the value of the Canadian dollar.
“Canada’s indebted to the rest of the world, so when we have political instability, they may be concerned that Canada will have problems repaying debt,” he said.
Mintz said the “big correction” in this year’s fall economic statement was “unusual.” Settlements paid to Indigenous groups were added to this year’s books, prompting defenders of the government’s spending to point out that these are one-time costs and not program spending.
“Another factor is international capital flows. If we’re taking on a lot of debt. Not much money is coming into the country, which would cause the Canadian dollar to fall,” Mintz said.
He said oil, one of Canada’s biggest exports, has also faced recent price declines due to global markets, which could also factor into the sudden dip in the value of the loonie. Any commodity on which Canada relies becoming less valuable will invariably affect the value of the dollar, Mintz pointed out.
Canada’s relatively lower interest rates than the U.S. mean that lenders would rather hold onto U.S. cash than Canadian. The gap between Canadian and U.S. bond yields remain large, with 10-year Canadian bonds granting 1.231% lower returns than those in the U.S.
Mintz said Canadian exporters are the main beneficiaries of the dollar dunk, as one U.S. dollar is about 1.43 CAD compared to last year’s 1.33 CAD. Canadian exporters are making more money from their exports, but the costs will rise for anyone who has to import goods from other nations.
“This impacts both importers and exporters,” Mintz said. “Supply chains are international these days, so they bring in some parts from other countries that are going to be more expensive than they export, so they are going to have more competitive pressures as a result.”
Anyone travelling internationally, particularly to the U.S., is sure to feel the pinch whether on vacation or visiting family abroad, as the price difference will likely be noticeable.
Mintz noted that Canada’s salary and income levels also dropped relative to the U.S., making an American salary even more attractive.
“(The value gap) also discourages people from the U.S. coming to Canada. They’ll want their employers to pay higher salaries to make up for the differences between Canadian and US salaries,” he said. “So it might be good for some parts of the economy if you’re exporting, but generally, it’s bad news for everybody else.”