US Dollar Strength Sends Canadian Loonie Plummeting to Historic Lows

The Canadian dollar has been trading at historically low levels against the US dollar, falling to around 70 cents. This is just shy of the extreme lows seen during the COVID-19 pandemic and the Tariff Day crisis. The Bank of Canada's recent GDP contraction and the country's reliance on oil exports have contributed to its weakness.

However, analysts suggest that the US dollar's strength, rather than Canadian dollar weakness, is the main driver behind this trend. Since Kevin Warsh was confirmed as Federal Reserve Chair in May 2026, the US dollar has surged broadly, pushing the Japanese yen back up to a 30-year high and weakening the euro.

The shift in market expectations for rate cuts following Warsh's appointment has also contributed to the US dollar's strength. The futures market initially priced in three interest rate cuts this year but is now expecting no change or even one 25-basis-point hike. This shift has led to a widening of short-term yield spreads, with two-year yields at 4.07% in the US and 2.75% in Canada.

As a result, some investors are considering hedging their USD exposure, while others see opportunities in gold, which has started to behave based on fundamentals again after being influenced by money flows into ETFs for much of last year.