The Canadian dollar is so low in 2025 due to a combination of factors including weaker Canadian economic growth compared to the U.S., higher U.S. interest rates relative to Canada, lower oil prices, and structural economic weaknesses such as high household debt and a fragile housing market. Investors favor the stronger U.S. dollar because interest rates in the U.S. are higher, offering better returns, which makes the Canadian dollar less attractive. Additionally, Canada's heavy reliance on oil exports makes its currency sensitive to fluctuations in oil prices, and recent economic data showing job losses and slowed GDP growth have further weakened the loonie. Trade uncertainties and Canada’s economic challenges relative to the U.S. have also contributed to the low value of the Canadian dollar.
Economic Growth and Interest Rate Gap
Canada’s GDP growth has slowed to around 1%, compared to nearly 3% in the U.S., and the Bank of Canada is expected to cut rates while the U.S. Federal Reserve maintains higher rates. This interest rate differential encourages investment in U.S. assets instead of Canadian ones, putting downward pressure on the Canadian dollar.
Oil Prices and Commodity Dependence
The Canadian dollar is particularly vulnerable due to Canada’s reliance on oil prices. When oil prices fall, the loonie tends to drop more sharply because oil is a major export commodity for Canada. This dependence amplifies currency volatility.
Structural Challenges
Low productivity, high household debt (about 180% of disposable income), and a fragile housing market create economic vulnerabilities that undermine confidence in the Canadian dollar. Corrections in the debt-fueled housing sector are slowing growth and weighing heavily on the currency.
Trade and Investor Sentiment
Concerns and uncertainties around trade policies, especially related to U.S. trade relations, affect investor confidence. Despite some relief from tariff impacts, ongoing trade tensions and the dominant strength of the U.S. economy continue to pressure the loonie.
In summary, the Canadian dollar's low value in 2025 reflects both structural weaknesses in Canada’s economy and cyclical factors like interest rate differentials, oil price fluctuations, and trade uncertainties that favor the U.S. dollar.
