Canadian dollar falls to four-year low as U.S. leadership is set to change

The reelection of Donald Trump is shaping up to be bad news for Canada when his new administration takes office. However, Trump already seems to be having a really big impact on his neighbor to the north. 

From concerns about new trade policy and tariffs to the problems that Trump’s massive deportation plans could cause, these problems are raising concerns in Canada and it's affecting the Canadian dollar. 

The Canadian dollar has taken a pretty big hit since Trump was reelected, news which is quite concerning since the president-elect hasn’t even taken office. The mere threat of Trump seems to be hurting Canadian interests. 

However, Trump may not be to blame for the falling Canadian dollar. Several factors seem to be at play. Let’s take a look at what’s been happening to Canada's dollar and why it has fallen to a multi-year low. 

According to the Globe And Mail, Trump's election supercharged the US dollar, which in turn pushed Canada’s exchange rate against the greenback to a four-year low. 

“The loonie has fallen around 2 per cent against the U.S. dollar since the election and around 4 per cent since September, when financial markets began leaning into the 'Trump trade' in expectation of the Republican candidate’s return to the White House,” The Globe and Mail’s Mark Rendal explained. 

“It’s now trading near 71 US cents, down from around 74 US cents in late summer – a level last seen in the early days of the COVID-19 pandemic,” Rendall added. 

Rendall went on to explain that the weakening dollar has less to do with Canada’s currency, which has held up far better than other foreign currencies like the Euro or Japanese Yen against the greenback, and more to do with the strength of the US dollar. 

However, the loonie's problems also reflect a growing economic problem in Canada that has seen investors flock south for better money-making opportunities. 

The growing gap between Canadian and American interest rates, Trump’s proposed tariff and deregulation policies, and Canada’s consumption and investment weakness have already helped push the dollar to a recent multi-year low. 

"We haven't seen these levels in a long time. I think we have certainly breached a level that is worrisome,” Katherine Judge, director and senior economist with CIBC Capital Markets, told CTV News. 

"There's a lot of factors at play and a lot of uncertainty over the next few months,” Judge continued. She also noted that she expected the loonie to remain at its current levels against the dollar for the rest of the year. But this isn’t necessarily a bad thing.

A weaker Canadian dollar has its advantages, especially when it comes to exporters and their ability to ride out any of the potential tariffs Trump has promised that he would impose on imports. 

CTV pointed out that a low Canadian dollar can be a boon for Canadian companies that export goods to the United States but, in turn, it can hurt companies that are importing goods into Canada and can make travel more expensive for Canadians. 

Judge explained that there are always winners and losers when it comes to fluctuations of currencies. However, the loonie has now tipped so low against the dollar that the scales of the loonie’s fluctuation have moved too far in one direction.

"You want the Canadian dollar low enough that it's an attractive place for firms to invest and hire at a competitive wage, but you don't want it so low that you start importing inflation," Judge said.

What will happen next has yet to be seen, but Canada could be entering a period of very volatile currency fluctuations as Trump enacts the policies he promised U.S. voters while on the campaign trail, policies that could deeply affect Canada.