Like the jack-o’-lantern starting to rot on your porch, the loonie isn’t looking too good this morning.
What happened: The loonie has fallen to its lowest level since 2020, trading below $0.72 compared to the U.S. dollar as the divergence between interest rates between Canada and the U.S. continues to weigh on the Canadian currency. Experts say it could fall even further.
Why it’s happening: Both countries have started to bring down interest rates to boost their economies, but the results have been very different. Yesterday we wrote about the strength of the U.S. economy, while recent GDP growth data shows that Canada remains sluggish.
- This gives the U.S. the leeway to pause rate cuts at 5% if need be. Canada has no choice but to bring rates down from 3.75%, which would extend the widest gap seen in decades.
- Since it’s more attractive to hold the currency with the higher interest rate, the U.S. dollar could continue to grow stronger against the loonie until the trend reverses.
Why it matters: A feeble loonie has an obvious downside: it weakens your buying power when travelling or buying from abroad. On the bright side, if you have investments in any U.S.-based securities, your returns will be higher when converted to Canadian dollars.—QH