External threats could send the loonie tumbling lower, but falling interest rates argue for some upside.
The Canadian dollar’s underperformance has deepened over the last two years. Soft commodity prices, subdued investment, and rising household borrowing costs—the heaviest in the G7—are weighing on economic growth, forcing the central bank to ease policy more aggressively than the Federal Reserve. Donald Trump’s imminent return to the White House has reignited trade uncertainties, putting the exchange rate under additional pressure. These challenges will persist in 2025. Mortgage resets will raise aggregate household borrowing costs, turbulence in the country’s relationship with the US will crimp business investment, and the Bank of Canada’s rate cuts will continue. Currency markets—always prone to...