Will the Canadian dollar slip below 70 cents US?

The Canadian dollar has slipped to its lowest level in five years. Outside of the depths of the COVID pandemic, the loonie is weaker than it's been since 2015.

And experts say there's every reason to think it will fall even more.

"I wouldn't be too shocked if we were to get below 70 cents [US] and even perhaps all the way down to 68 cents at some point," said Karl Schamotta, the chief market strategist of the financial payments company Corpay.

The Canadian dollar has been on a long, slow decline since the summer of 2021. But the decline has picked up steam this month as the U.S. dollar soared on news that Donald Trump had won re-election.

The American dollar gained ground on the currency of almost every industrialized country in the world as he has promised tax cuts, deregulation and sweeping tariffs on all U.S. imports.

About 75 per cent of all Canadian exports go to the U.S. which hasn't exactly injected confidence into the loonie.

"The market momentum is clearly against the Canadian dollar right now. And, you know, that market momentum does tend to build ahead of the inauguration date when new presidents take their office," said Schamotta.

A weakening dollar has sweeping effects on the Canadian economy. It means imports are more expensive. But it also means exporters who get paid in U.S. dollars bring in more money. 

"We watch it like a hawk," said Paul Colborne, president and CEO of Surge Energy, based out of Calgary.

Surge pumps oil primarily in central Alberta and southern Saskatchewan. The company produces about 24,000 barrels of oil per day.

And currency fluctuations are crucial for the company's bottom line.

"For every penny that the dollar goes up or down affects annual cash flows [by] $7 million a year, so we watch it very closely," Colborne told CBC News.

Right now, the main North American benchmark crude sells for about $71 US per barrel. With the loonie trading around 70 cents US that means a hefty markup for companies like Surge.

"We sell our oil in U.S. dollars, and get U.S. dollars for them, and then convert them back. So today, Surge is getting about $97-$98 Canadian per barrel for our oil, which is a very attractive price," said Colborne.

The low dollar will help more than just energy companies. Cars and car parts, grain and lumber will also see similar surges in profits with the dollar at these levels.

But it will also drive up prices of anything imported from the United States.

Bank of Montreal's chief economist Douglas Porter says Canadians were already feeling the pinch of higher prices for just about everything and increased borrowing costs. Now, he says, the cost of just about anything imported from the U.S. is rising as well.

"It almost automatically leads to higher gasoline prices. It can filter right into food prices because much of the food that we buy now is imported or has to compete internationally," said Porter.

Hit hard by inflation

It wasn't that long ago that the Canadian dollar was worth more than its American counterpart.

As the price of oil remained stubbornly high between 2010 and 2014, Canada's currency traded between $1.05 and $0.95 US. But when the price of oil fell in 2015, the loonie plummeted as well.

Trading levels remained muted until the pandemic crashed into the economy. Initially the Canadian currency climbed. But that climb was short lived. Inflation, debt and government spending started weighing down the dollar.

"We are one of the most interest rate sensitive economies in the world. We've been hit hard by the rise in inflation and interest rates in particular," said Porter. 

Schamotta says over the past couple of years the U.S. economy has expanded while economic growth has flatlined in Canada, giving currency traders a clear contrast.

Canada has "higher borrowing costs that are hitting an over leveraged household sector. We have soft commodity prices, we have weak business investment, and we have poor productivity, right?" said Schamotta.

Schamotta says the economics are simple enough to explain, but he says there's a psychological impact at play as well.

"People tend to see the currency value as a sort of national virility symbol," he says. So they'll get excited when the dollar is high and disappointed when the dollar is low.

Colborne says even though his company stands to benefit, the low dollar reflects badly on the state of the broader Canadian economy.

And he puts the blame for that on policy-makers in Ottawa who, he says, spent too much, printed too much money and weakened the Canadian economy in the process.

"The really sad thing is, for me and you and the rest of Canadian citizens, our standard of living has dropped 35 to 40 per cent versus the United States in the last eight years," he said.

That's just one small glimpse into the impact a low dollar can have on the way many Canadians see the economy and the politicians they blame for its woes.