Canadian Dollar Hits 15-Month Low
TORONTO — The Canadian dollar has reached its lowest point in almost a year and a half, influenced by a sluggish domestic economy and a robust demand for the U.S. dollar.
The exchange rate has been on a downward trend since early May when it hovered around 74 cents against the U.S. dollar, dropping to approximately 70 cents by Thursday.
Karl Sciamotta, who heads the currency research group at Kopay, noted that the dollar is “crushing all its global rivals,” as the U.S. experiences an AI-driven investment surge and companies report strong profits, leading to a better-than-anticipated economic performance.
“The theme of American exceptionalism is very strong right now,” he remarked.
He added, “Money is leaving other countries and coming into the United States.”
With the U.S. economy showing strength and inflation remaining a concern, many traders anticipate that the U.S. Federal Reserve may increase interest rates before the year’s end.
Last week, the Federal Reserve set the target range for its federal funds rate at 3.50% to 3.75%. This rate significantly surpasses the Bank of Canada’s benchmark interest rate, which stands at 2.25%.
The Bank of Canada is generally expected to maintain its key lending rate due to relatively slow domestic growth.
“There is no doubt that interest rate differentials between countries have the most powerful influence on exchange rate movements,” Sciamotta stated.
He continued, “If investors have the option to invest in another country, they will be more likely to move their money to one that offers a higher yield.”
Uncertainties from tariffs and trade tensions with the U.S. are also impacting both business and consumer sentiment in Canada. Consequently, companies have reduced investment and hiring, and personal consumption has taken a hit.
The deadline for extending the Canada-U.S.-Mexico trade agreement is July 1, and if all parties cannot reach an agreement to update it, the deal will be subject to review. These trade negotiations could introduce additional uncertainty, as past practices from the Trump administration involved using tariff threats to obtain favorable terms.
Sciamotta indicated that negative headlines are likely to emerge, suggesting that prolonged negotiations could further pressure the Canadian dollar.
Sarah Yin, who oversees currency strategy at CIBC Capital Markets, speculated that the Canadian dollar might continue its decline in the months ahead, influenced by trade talks and positive U.S. economic indicators.
Yet, she also indicated that any downturn may not be lasting.
Yin believes that a stronger Canadian dollar is possible later in the year, especially if the Canadian economy picks up speed and trade agreements clarify.
She forecasts that it could rise back to around 73 cents against the U.S. dollar.
Sean Osborne, chief currency strategist at Scotiabank, shares the sentiment that the currency could trend upward, estimating it may reach about 75 cents by year-end.
Osborne anticipates that the interest rate spread between Canada and the U.S. will fluctuate as the Fed potentially lowers its rates and Canada raises its own overnight rates.
“If our view is correct and U.S. interest rates fall while Canadian interest rates rise, then the yield differential should shrink and the Canadian dollar should recover slightly above current levels,” he suggested.
However, he also cautioned that evolving conditions in monetary policies, economic factors, and trade discussions could influence this outlook in unpredictable ways.
