Despite rebounding on Wednesday, the Canadian dollar continues to face pressure after U.S. president-elect Donald Trump threatened to impose a 25 per cent tariff on all Canadian imports.
The loonie hovered around 71.10 cents USD in early-morning trading, reaching as high as 71.36 cents USD by 10:30 ET.
However, some economists warn there are few reasons for optimism that the uptick will be prolonged considering the widespread impacts hefty tariffs would have on the Canadian economy.
“It’s going to lead to slower economic growth, possibly higher inflation, possibly higher unemployment and so, again, if you’re looking to invest your money in any currency in the world, Canada doesn’t look all that attractive,” said Concordia University Economics Professor Moshe Lander.
“When the demand for the Canadian dollar falls, so does its price.”
It’s not a foregone conclusion that a 25 per cent tariff on Canadian exports to the U.S. will be put in place. Trump said the measure is meant as retaliation for illegal immigration and “crime and drugs” crossing the border.
Still, the possibility of hefty tariffs has been enough to send the loonie on a downward trajectory.
The dollar’s five-year high came back in May 2021 at around 83 cents USD before tumbling nearly 14 per cent to just 71 cents USD.
The Canadian dollar’s five-year high came back in May 2021 at around 83 cents USD before tumbling nearly 14 per cent to just 71 cents USD.
For Canadian travellers heading south of the border, the exchange rate is a bitter pill to swallow.
“It’s a heavy cost. I spent over $800 CAD to get around $500 USD so, it’s a heavy hit,” said Jimmy Hong who was flying from Ottawa to Las Vegas Wednesday afternoon.
“We’ll be going to maybe one less show, maybe watching our money on where we eat, specifically, because the dollar exchange is just way too much.”
It’s a similar story for Nancy Quattrocchi, who was born in the U.S. but now calls Canada home.
“I think it’s going to affect probably how many times we visit the U.S. or any place that uses the U.S. dollar,” she said.
More aggressive interest rate cuts by the Bank of Canada compared to the U.S. Federal Reserve has also impacted the loonie, but Lander says, tariffs would be a more significant gut punch.
“If you’re a Canadian business, you have three options at this point,” he said.
“One is, lower profitability, which could be the difference between being in business or being out of business. Lower pay for your workers and make them pay for the tariff in the form of lower wages or pass it on to your consumers and make them pay higher prices.”