Weak commodity prices, rising deficits, and slow-moving reforms point to continued trouble for the loonie, with a rebound nowhere in sight.
What’s going on here?
Canada’s dollar keeps losing ground, weighed down by falling commodity prices and lingering budget deficits – and Rosenberg Research isn’t expecting a rebound anytime soon.
What does this mean?
The Canadian dollar – nicknamed the loonie – can’t seem to catch a break. Rosenberg Research points out that both deep-rooted issues, like expanding budget deficits, and shorter-term pressures, especially weak commodity prices, are keeping the currency under strain. The Bank of Canada is already on hold with rate hikes, but softer inflation and a wider output gap could even nudge the central bank toward cuts sooner than markets expect. Canada’s newest federal budget is heavy on supply-side reforms and long-term investment aims, but the benefits will take time and depend on strong business–government teamwork. For now, with little direct stimulus, sagging oil prices, and worsening trade terms, the loonie could keep sliding – Rosenberg sees a potential drop toward C$1.45 per US dollar before a real turnaround emerges.
Why should I care?
For markets: The loonie stays on the defensive.
Investors have fewer reasons to favor Canadian assets right now. With commodity prices dropping and budget deficits widening, the loonie is already hovering near multi-year lows – and sentiment could worsen if growth remains sluggish. Equity and bond markets in Canada could see more turbulence as global investors react to these headwinds and recalibrate expectations for the currency.
The bigger picture: Canada’s policy pivot needs patience.
Canada’s new supply-side budget reforms may lay the groundwork for stronger long-term growth, but it could be years before those results show up. Until then, factors like declining exports and rising government borrowing costs could keep growth slow and the loonie under pressure, putting policymakers under the microscope to deliver quicker solutions.
