Even as Canada gained an 11th-hour reprieve from U.S. plans to impose punishing tariffs on its goods, the loonie had earlier in the day dipped to its lowest levels in more than 20 years as the threat of a trade war weighed on the currency.
The Bank of Canada's end-of-day exchange rate Monday had the loonie trading at 68.48 cents US, but the Canadian dollar neared 70 cents in the minutes after Prime Minister Justin Trudeau said the planned tariffs would be paused for at least 30 days.
The overall trend for the Canadian dollar however has been weak, which has implications for the economy.
"Canadians could be impacted by what a declining exchange rate is telling us about the economy itself: that it’s in trouble," said Karl Schamotta, chief market strategist at Corpay.
In its economic outlook, the Bank of Canada projected a 2.4 per cent drop in the country's GDP in the year if tariffs were implemented, compared with its 1.8 per cent GDP growth for 2025 in a no-tariff scenario.
A weaker loonie could push prices higher for everything from groceries to products bought on Amazon, as well as vacations.
Should the tariffs be ultimately implemented after the 30-day pause, Schamotta said the loonie could see a further decline of two to three per cent and risks falling even lower if markets believe the tariffs are going to be in place for a prolonged period of time.
"A sustained implementation of tariffs would almost certainly drive Canada into a recession and cause enormous hardship for families across the country," he said.
Still, this could be a good time for some investors.
Gardner said Canadian investors need to be patient and not panic sell, or buy, as the dollar fluctuates.
With a persistently weak Canadian dollar in mind, Gardner said her team tilted investment portfolios toward U.S. exposure going into 2025.
She added this could also be a good time for investors to cash in any holdings in U.S. dollars.
Schamotta said a weaker loonie could help offset the cost of tariffs for buyers around the world purchasing Canada-made goods.
"Export industries that have suffered for decades could find new global markets to sell into," he said.
While a weaker dollar could offer a silver lining to exporters, Adam Button said it isn't as beneficial as it used to be before.
"It's become clear that the weaker Canadian dollar isn't the lever that it once was for business investment and growth," said the chief currency analyst for Forexlive.
Button said while Canada could appear to be cheaper to investors to bring business, it's still far more expensive than Mexico or China in terms of labour costs.
A weaker Canadian dollar "isn't a big tailwind for the economy like it was in previous generations," he said.
