The Canadian dollar against the U.S. dollar has been on a continuous decline over the last decade. On the 3rd of February it costed just 67 cents (U.S.) to buy one Canadian dollar for the first time since 2003. This came just after the resignation of Prime Minister Justin Trudeau, and days after President Trump announced tariffs on imports from Canada.
Historically interest rates of the Bank of Canada follow closely the movements of the U.S. Federal Reserve. This has changed dramatically over the last few months. From a stable 5% in April 2024 the interest rate in Canada has dropped to 3%. This was confirmed in a recent statement from Bank of Canada Governor Tiff Macklem.
At the time of the press conference, tariffs were already being widely discussed, and the Governor addressed this in his statement.
“Monetary policy cannot offset the economic consequences of a protracted trade conflict,” Governor Macklem explained. “The reality is the economy is going to work less efficiently. Canada will produce less and earn less. Monetary policy can’t change that. What it can do is help the economy adjust and be a source of stability through that adjustment.”
Will the Bank of Canada Lower Interest Rates Further in 2025?
The future role of the Bank of Canada was clarified by the Governor during his statement. Yet, the current interest rate will still be a matter of concern for most Canadians. In the U.S. Jerome Powell has stubbornly held the target interest rate at between 4.25% and 4.5%. Economists don’t believe that there will be any changes to the U.S. interest rate for at least another six months. This may not be the case in Canada.
This is affected by factors like unemployment, which is important as the U.S. job market is currently experiencing one of its strongest periods since the 1950s. In January it was reported to be 4%. This is in stark contrast with Canada where unemployment is 6.6% as of February 2025.
Should tariffs come into effect – and that’s a big ‘if’ – this could lead to rising inflation in Canada, driven by the loss of thousands of jobs.
There would be dramatic increases in prices of imported goods due to a trade conflict, where the Canadian government places tariffs on U.S. goods in retaliation. This inflationary trend, coupled with rising unemployment, would then lead to lower consumer confidence leading in turn to lower productivity.
Productivity is something that the Governor of the Canadian central bank is concerned about. Long term productivity has been sluggish. To justify lower interest rates, productivity would need to increase. Otherwise inflation may spiral even leading to a recession for Canada.
How Does the U.S. and Canada Compare?
The problem lies in the combination of a growing government debt burden and low GDP per capita. These challenges have started to widen the divide between the U.S. and Canada.
As we have mentioned at DisruptionBanking before, the U.S. is Canada’s largest trade partner. According to the Office of the U.S. Trade Representative in 2024 Canada imported $349.4 billion from the U.S. whilst it exported $412.7 billion. Additionally, in 2024, the U.S. was the destination for 75.9% of Canada’s total exports and was the source of 62.2% of Canada’s total imports. In the future the trade surplus with the U.S. is set to widen. Much of this being led by the natural minerals and oil and gas that Canada has in abundance. Commodities that U.S. customers want to buy.
When it comes to GDP per capita, according to the World Bank the last time that citizens of the U.S. and Canada were similarly productive was in 2013. At the time GDP per capita was approximately $52,000. Today in Canada this number has only slightly increased to $53,400 as of the end of 2023. In comparison, the U.S. has seen this figure surge to $82,700 as of the end of 2023. There are multiple reasons for this, but to cheer up Canadian readers, the UK’s GDP per capita at the end of 2023 was only $48,880.
The Carbon Tax and Government Debt
Another contrast that is important to consider is the cost of a litre of petrol. In the U.S. this is approximately $0.90, whilst in Canada at best this price is $1.05. Part of this is down to Canada’s ‘carbon tax’ which equates to approximately $0.12 per litre. Just one of the policies that led to the loss in popularity for Prime Minister Trudeau.
Finally, it’s important to consider government debt as a percentage of annual GDP. In the case of the U.S. the debt is startling, but as a proportion of annual GDP so is Canada’s. The U.S. federal debt is over $36 trillion as of late 2024, at the same time U.S. annual GDP for 2024 was $29.1 trillion. In the case of Canada the annual GDP is $2.2 trillion. However, the debt is only $1.5 trillion. This difference allows Canadians to be confident that there might have been some caution shown in setting monetary policy historically. At least in comparison with U.S. monetary policy.
Should Canada Prepare for More Inflation?
It is a long time until October by which time elections must take place in Canada. Until then there will be a lot of negotiations to navigate with the new U.S. administration. The initial request from the U.S. for Canada to address border security and drug smuggling has been met by the Canadian government. Yet it appears not to be enough to appease the new administration. This means that over the next weeks more uncertainty can be expected.
The Canadian dollar has proved quite resilient so far in 2025. Apart from a drop on news of Trump’s executive order it has held at 0.7 cents on average against the greenback since January.
The Bank of Canada recently modelled a scenario where the U.S. imposes 25% tariffs on all imports and its trading partners fully retaliate. They found that such actions would produce negative economic outcomes for both Canada and the U.S. with higher inflation and lower growth.
All of this adds to speculation about how strong the Canadian dollar will be in 2025. But when it comes to inflation, it’s important to note that this is below 2% in Canada today. Much lower than it is in the U.S. where it is currently 3%.
The Carbon Tax and Canada’s Oil & Gas Sector
Canada is the fourth largest oil producing country in the world. Most of its multi-billion-dollar energy companies are listed on the Toronto Stock Exchange. The Canadian Association of Petroleum Producers represent the ‘Oil Sands’, the third largest proven oil reserve in the world. These reserves are some of the reasons why Canada is the world’s fourth largest oil producer.
Is Canada doing enough to leverage the position it has on global oil markets? It doesn’t look like it. In a story from Reuters last year it was highlighted how climate advocates said oil sands companies lack comprehensive strategies to decarbonize.
The government has a further challenge in addressing the need to attract $140 billion in annual investment to reach net zero. Currently, the energy sector is not engaged in these challenges to the levels that Canada needs.
There is some innovation going on through the Export Development Canada (EDC), a Crown corporation dedicated to helping Canadian companies. But initiatives like the carbon tax and others have made it hard for the collaboration needed between government and business.
This is why the price of oil will be key for the strength of the Canadian dollar in 2025. The importance of the oil exports from Canada are going to play an important role in the U.S. economy. An economy that already depends on oil. Not to mention how many investors in Canadian energy companies are U.S. based.
How Strong will the Canadian Dollar be in 2025?
Due to the continued uncertainty in Canada it is unlikely that the Canadian dollar will strengthen against the U.S. dollar in the short-term. Options and futures markets in January showed increased concerns of future depreciation of the Canadian dollar.
Before the end of the year ING’s analysts had suggested a $0.66 level for the Canadian dollar. If the trade conflict did escalate. In the more recent Currency Report Card from Royal Bank of Canada Capital Markets, the outcome is more positive with a long term $0.71 level suggested towards the end of 2025.
April 2nd will be a key date here when Trump will be nearer to finalizing his trade policy. It is the period leading up to that day which will continue to be filled with uncertainty. However, as has been seen already by the ‘loonie’ (the familiar name for the Canadian dollar), it has done well to maintain its levels over the last few weeks.
What to watch
The need to develop the infrastructure in Canada is urgent. Statistics Canada estimates that it would take $2.6 trillion (CAD) to replace all of Canada’s road and water infrastructure. Much of which does need replacing. Not to mention new infrastructure at the scale needed.
There is also the matter of Canada’s defence spending. In 2024 this was only 1.31% of GDP, far below what Trump has suggested as the necessary level for NATO members, i.e. 2%. Any negotiations regarding tariffs will inevitably take this shortfall into account.
Mark Carney, the ex-Governor of the Bank of England, is being touted as a candidate for Prime Minister this year. This is following the resignation of Prime Minister Trudeau. Carney has been an advisor to Trudeau since 2020 and is said to have been involved in creating the ‘carbon tax’, an unpopular policy with Canadians.
It’s Pierre Poilievre who is the forerunner in this year’s Canadian election. The leader of Canada’s Conservative Party might be able to navigate the turbulent economic negotiations better than his predecessor. Especially as Elon Musk has already made his positive feelings clear about Canada’s opposition leader. He also wants to make Canada a great and prosperous country, which means significant changes—more than just buying lots of Canadian flags.
#Loonie #CanadianDollar #CAD #USD #CADUSD #Trudeau #BankofCanada #CarbonTax
Author: Andy Samu
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
Currencies marked in this story are USD dollars unless otherwise stated.
See Also:
How Strong Will The Canadian Dollar (CAD) Be In 2024? | Disruption Banking
How strong will the Canadian Dollar be in 2023? | Disruption Banking
The Freedom Convoy and Trudeau’s Hypocrisy | Disruption Banking
28 Responses
“It’s Pierre Poilievre who is the forerunner in this year’s Canadian election. The leader of Canada’s Conservative Party might be able to navigate the turbulent economic negotiations better than his predecessor. Especially as Elon Musk has already made his positive feelings clear about Canada’s opposition leader. He also wants to make Canada a great and prosperous country,”
Just because of this statement, I will not be voting for Pierre Poilievre. If the performance of a Canadian PM is based of the opinion of Elon Musk then I may as well give my vote to another candidate.
Absolutely … vying conservative support for republican actions! If Mark Carney who helped curve Canada come out earlier, is elected liberal leader, he gets my vote. PP is losing support after getting favorable nod from Elon..
Remember Carney help make the carbon tax,and also move his business out of canada into new york
Canada needs to hire Elon Musk to eliminate all wasteful progressive liberal, woke and DEI spending, including foreign “investment” we can no longer afford. Open up our provincial trade borders and eliminate drug trafficking and addiction which was exacerbated by Trudeau’s ridiculous legalized marijauna experiment now proven utterly disastrous.
Agreed. And thank you. Can you imagine the ramifications of getting in a prime minister who is friendly with those goons over there?! This should deter us from voting him in …in fear we inherit the mess south of us!
I guess you will be happy with more of the same social and financial erosion in Canada ? Hopefully ……Canadians don’t base any of our future decisions on something Musk spews.
Watching what is happening in the US has made me very distrustful of the Conservative party! They are only interested in letting the rich get richer! Tax breaks for the rich while stripping services from those that need them disgusts me.
The carbon tax was designed to move people toward greener energy. We need to keep moving in that direction if we want to avoid total disaster (although you couldn’t pay me to drive a Tesla!)
I am horrified by what Trump and Musk are doing and they are using Fox News and X (and other republican-owned social media sites) to fool the public. Research the IDU, of which Stephen Harper is chairman. They are behind the rise of far-right leaders around the world who use attack ads and dishonest social media to bolster their campaign, and try to discredit/eliminate independent news outlets.
I don’t feel I can trust Poilieve, though he is a gifted speaker and more polished than Trump.
If carbon tax on emission is so important to Canada, stop oil and gas exploration and supplying to USA. Emission can not be contained in box. It’s surprising that US is not charging carbon tax from Canandian truckers entering into US.
He’ll win, nevertheless.
Ha, just when I thought the article was balanced, comes the electoral pitch. Poillievre’s credentials of solving problems are a big zero. He’s just a pathetic smoke and mirrors opportunist.
Hi Marcel, there is more scrutiny needed into who Pollievre actually is. But, as many politicians today explain, it’s hard to find squeaky clean public service focussed people who actually might do some good for wider society. Perhaps we expect too much. Irrelevant if left or right…
What were Trudeau’s qualifications that had you vote him in? That camp counsellor experience has been a major plus for us Canadians. I used to be a proud Canadian, Ive travelled to many countries happy to show off my Canadian flag. Not anymore, is everyone blind to what Trudeau has done to this country? He was about to be forced out, so what does he do.. shuts down parliament like a child so he cant be kicked out and we all suffer because of it.
Simply put, Elon is obviously a much smarter person than you. Obviously a better business person than Carbon CARNEY.
If Musk favours Poilievre then I would trust the opinion of a winner over someone who votes based on personalty,looks or hair?
If liberals had brains Canada wouldn’t be broken by Trudeau/Carney.
Ou hit the nail on the head!
You may as well cut your nose of to spite your face!
You types are idiots then to NOT VOTE for someone based on an actual positive statement about Canada by someone who is not even a Canadian. Grow up and get out of your diapers.
The Liberals are the problem,removing Trudeau is only part of the solution don’t be fooled.
Yes we want someone who is not in league with the fascists and oligarchs down south. Conservatives are our version of Republicans
Say NO to PP
Agreed with the statements above. Liberals have my vote.
Come on Canadians open your eyes we are not Americans and NEVER will be. Buy product of Canada and travel anywhere but the USA. It is making a difference they are noticing the drop in revenue. True NORTH STRONG AND FREE.
No they arent, obviously you dont travel. Maybe Florida and Arizona will feel a little pinch but as long as our dollar doesn’t go down much more people will always travel to the US. Are you not feeling the negative effects from the Liberals, did your food, gas and much more not go up? If you vote for them your giving them your blessing to continue what they are doing
Trudeau and Carney are one and the same. A vote for Carney is a vote for the status quo and to watch Canada sink even further. Unlike Carney, Poilievre is his own man
Seems he’s just another catch phrase trump type.
I’ve not actually seen a policy platform from him yet.
Carney and the Liberals gave us the carbon tax. They put our economy in the dumpster. We need a refreshing change. Vote P. P., the Conservative Party has my vote.
Let’s be honest. Trump is (has been labeled) a moron. Elon Musk is already running the us and he is a formidable business.man but unable (no experience) to deal with the large us beauracracy no matter what his claims. He is nevertheless very intelligent and needs to be dealt with by a seasoned, disciplined and intelligent adversary with a proven multi faceted track record.
Mr Polievre is another school teacher with “0” experience in business (economy, trade and commerce and dealing with a diversified array of issues). Mark Carney is by far far, the most impressive and proven leader. Working strategically with Chrystia Freeland would easily allow us to keep the U.S. elephant at bay…. and even perhaps keep them there for decades to come….. remember Trump has publicly stated that he believes Ms freeland is a.”nasty” personality whom he dislikes. She literally kicked his ass in the last nafta negotiation which he is currently trying to renege on
..
Let’s ditch the huge Canadian government and join the land of opportunity
Totally agreed with this other comment…”Trump is (has been labeled) a moron. Elon Musk is already running the USA and he is a formidable business.man but unable (no experience) to deal with the large us beauracracy no matter what his claims. He is nevertheless very intelligent and needs to be dealt with by a seasoned, disciplined and intelligent adversary with a proven multi faceted track record.
Mr Polievre is another school teacher with “0” experience in business (economy, trade and commerce and dealing with a diversified array of issues). Mark Carney is by far far, the most impressive and proven leader”
I agree the carbon tax is necessary, however this was not the time to implement it. Our economy is suffering and will not get any better in the near future. The liberal party appears to be out of touch with the common working force or retirees. Taking away a pittance of money from those retired was the tipping point for me, I found it disgraceful.
The Conservative party, although appearing offering a different approach, makes promises knowing they either can not keep or if they go through with them ie. a pipeline across canada would significantly increase our debt. What choice do we have ??
The upcoming Canadian election will undoubtedly be about keeping the sovereignty of Canada secure against the very clearly evident aggression of this US administration to take it!
So my vote will be for the leader with the best & most experienced team members that can take on that challenge! PERIOD! At this point, and unless Mr Poillievre can CLEARLY present his plan (without just one liners) and who on his PC team have that much needed experience, then my vote will land with the team of Carney/Freeland/Baylis.
At this juncture, left or right political policies will not matter at all if Canada is lost in the process!