The Canadian dollar dipped below $0.70 US on Tuesday, marking the first time it has done so since the onset of the COVID-19 pandemic in March 2020, according to Bloomberg data. This decline comes amidst a chaotic start to the week, which saw Finance Minister Chrystia Freeland announce her resignation from Prime Minister Justin Trudeau's cabinet. The federal government also revealed a $61.9 billion deficit for the 2023-2024 fiscal year, exceeding its deficit target by more than $20 billion.
The loonie's drop is set against the backdrop of a weakened economy facing the threat of a 25 per cent tariff on imported goods by U.S. president-elect Donald Trump. The U.S. dollar has been strengthening, further impacting the Canadian dollar's performance.
Rahim Madhavji, president of Knightsbridge Foreign Exchange in Toronto, noted an increase in U.S. dollar sellers as individuals convert their assets to Canadian dollars. The Bank of Canada's aggressive interest rate cuts and the threat of tariffs have also contributed to the loonie's decline.
Douglas Porter, chief economist at the Bank of Montreal, highlighted the impact of political uncertainty and the importance of U.S. trade to Canada's economy. He expressed concern about the loonie's future, citing the need for relief on the tariff front or positive economic news to support the currency.
In conclusion, the Canadian dollar's drop below $0.70 US reflects a combination of factors, including political uncertainty, economic challenges, and the strength of the U.S. dollar. The future of the loonie will likely be influenced by developments on the tariff front and economic indicators.