A sleeper election issue is our sinking dollar, which fell this past year by nine per cent against the U.S. dollar, reaching its lowest level since April 2003. It now takes $1.44 in Canadian dollars to buy one U.S. dollar. Flipping it over, $1 Canadian dollar costs just 69.4 U.S. cents.

Last new year, it took “only” C$1.33 Canadian to buy an American dollar (or 75 cents U.S. to buy C$1). So, if you imported a US$30 video game last year, you only paid C$40 plus GST/HST. This year, if you paid the same U.S. price, you’d better be ready to dole out C$43.20 — plus GST/HST when the gimmicky holiday is finished next month.

A low dollar is not something to be proud of. It’s another signal the world is less willing to hold Canadian dollars. We are not in as bad shape as countries with collapsing currencies, such as Turkey, whose lira has plummeted 45 per cent in the past two years, or Brazil, where the rial is down 25 per cent over the same period. We’re more like slow-growth Euroland and Australia, which saw their currencies devalue against the U.S. dollar by 5.3 and 8.3 per cent, respectively, in 2024.

A depreciating dollar has several effects on the economy. Exporters earn more profits since they receive more Canadian dollars for goods sold abroad. On the other hand, Canadians importing goods and services face higher Canadian prices, whether for fruits, vegetables, computer equipment or touring abroad. On the capital account, Canadians have been investing more abroad than foreigners are willing to invest in Canada.

We are poorer relative to the rest of the world when the Canadian dollar depreciates. Measured in U.S. dollars, our per capita incomes fall, making it more attractive for our best and brightest to move south to where opportunities are better. Foreigners are less willing to come here when our per capita income drops to Mississippi levels.

The fate of the Canadian dollar has played a role in past federal elections so it wouldn’t be a big surprise if it did in 2025’s, too. The most famous instance was the devaluation of the “Diefenbuck.” With the Canadian economy weakening and the Diefenbaker government fighting over monetary policy with Bank of Canada governor James Coyne, not only did our dollar sink — from parity to 92.5 U.S. cents, where it was fixed in 1962 in an agreement with the IMF — but so did the fortunes of the Diefenbaker government, which eventually lost office in 1963.

After reaching US$1.04 in 1974, the loonie slid to 69.1 cents in 1986, reflecting growing deficits, lower commodity prices and the threat of Quebec separation. It hit its all-time low of 61.8 U.S. cents in January 2002, the result of weak commodity prices and global uncertainty following the September 2001 attack on the U.S.

After a resource boom and continuing fiscal responsibility brought our dollar back up to parity during the Harper years, it fell to below 80 U.S. cents when commodity prices collapsed after October 2014. Since 2018, it has fluctuated around 75 cents but has trended down once again since early last year. After Chrystia Freeland resigned as finance minister it dipped below 70 cents, as political turmoil loomed.

Several factors cause the Canadian dollar to weaken. Commodity prices play a big role: resources account for over half our export earnings. So does political risk. And if real interest rates stay higher in the U.S., investors will prefer American to Canadian bonds. Increased private and public indebtedness to the rest of world also puts pressure on our dollar as investors become more concerned about our ability to service that debt.

Expect the Canadian dollar to weaken further in 2025. Oil prices are likely to soften due to falling Chinese demand and an oil supply gut. The U.S. Federal Reserve is not expected to cut interest rates as much as the Bank of Canada has felt necessary, given our weaker economy and lower inflation forecasts. And our indebtedness continues to grow — with the IMF expecting Canada’s balance of payments to weaken further even well beyond this year.

Then there are the Trump tariffs. Should they actually be applied on Trump’s first day in office, as he has threatened, expect the Canadian dollar to weaken even further this month. That will soften the tariffs’ impact on Canadian exporters but will hurt Canadian importers. U.S. tariffs will also encourage Canadian companies to shift production and capital to the U.S. rather than try to keep exporting from Canada, which is of course the goal of Trump’s mercantilist policies.

If the loonie falls further this year, that will be another negative in Justin Trudeau’s legacy. On top of all their other economic challenges, Canadians don’t want a declining currency, too.

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