US Dollar Surge Sends Loonie to Extreme Lows

The US dollar's resurgence has sent shockwaves through currency markets, sending the Canadian dollar to extreme lows.

At 70 cents on the dollar, the loonie is within a penny or two of its record low from the COVID-19 pandemic and Tariff Day in 2026, when tariffs were expected to push Canada into a recession. However, experts say this weakness is not due to Canadian economic factors.

The initial assumption was that it's a Canada problem, given oil prices dropping from $92 per barrel to $70 per barrel in June 2026 and gold falling from $4,500 an ounce to below $4,000 an ounce. However, the data shows two-year government yields in Canada have fallen slightly from 2.85% to 2.75%, while US Treasury two-year yields have risen from 4.03% to 4.16% as of June 29, 2026.

The real reason behind the loonie's decline is US dollar strength, which has broadened since Kevin Warsh was confirmed as Federal Reserve Chair on May 22, 2026. The Japanese yen has pushed back up to 162 (up is down for the yen), its lowest value against the US dollar dating back to the early '80s.

The market's expectations for rate cuts have dissipated, with futures pricing in no change or even a one-quarter point hike. The widening of short-term yield spreads from 1% to 1.32% is also contributing to the CAD drop against USD.