Weak loonie could have further to fall in 2025, economists warn

globalnews.ca:

Experts say the next few months are going to be rough for the Canadian dollar as it appears set to continue its downward trend.

“We do have more room to fall,” said Karl Schamotta, chief market strategist at Corpay.

The Canadian dollar has been trading below 70 cents US in recent weeks and is nearly four per cent below where it was in September.

Schamotta predicts the coming months will be “a very turbulent period for Canada” as uncertainty stemming from incoming U.S. president Donald Trump’s policy proposals weigh on business investment and consumer confidence — which means a weaker loonie in the short term.

However, that’s not the only factor at play.

The outperforming U.S. economy, which is pushing U.S. yields higher — well above yields in Canada — is attracting more investments south of the border. There’s also a widening differential in monetary policy between the Bank of Canada and the U.S. Federal Reserve, Schamotta said.

“That means that the Canadian dollar is much less attractive to global investors,” Schamotta said.

The U.S. Federal Reserve delivered a quarter-percentage point interest rate cut last week, and is now expected to slow the pace of its rate cuts next year to two from the previously estimated four cuts.

Meanwhile, the Bank of Canada delivered its second straight outsized interest rate cut this month, bringing its key rate down to 3.25 per cent.

Adam Button, chief currency analyst for Forexlive, said the slew of rate cuts come as the Canadian economy has continued to shrink on a per-capita basis.

Moreover, he added: “In 2025, the government is forecasting negative population growth. Population growth has been the only source of Canadian economic growth in the last two years and that’s about to go