The Current - The loonie takes a worrying tumble

Episode Date: December 3, 2024

The Canadian dollar is trading at its lowest level in almost five years. The CBC’s Peter Armstrong talks us through what’s going on, and what might lie ahead for the economy. 

In 2017, it felt like drugs were everywhere in the news, so I started a podcast called On Drugs. We covered a lot of ground over two seasons, but there are still so many more stories to tell. I'm Jeff Turner, and I'm back with Season 3 of On Drugs. And this time, it's going to get personal. I don't know who Sober Jeff is. I don't even know if I like that guy.

On Drugs is available now wherever you get your podcasts. This is a CBC Podcast. Hello, I'm Matt Galloway and this is The Current Podcast. If you checked out the Black Friday sales or perhaps Cyber Monday sales at American outlets, you probably noticed the loonie is not doing particularly well. After sliding downward all fall, the Canadian dollar is now trading at around 71 cents US, its lowest level in almost five years. The latest dip came just after US President-elect Donald Trump threatened to slap steep tariffs

on Canadian goods. To talk dollars, US politics, what might lie ahead for Canadians. I'm joined by the CBC's senior business reporter, Peter Armstrong. Peter, good morning. Good morning, Matt. Why is the loonie so low right now? Look, it's a good question. And there's a few answers, if you don't mind me sort of going through them, because it kind of depends not just on what you're looking at, but more specifically when you're looking at the period we're talking about, right? It was weakened considerably back in 2015 and stayed there.

You skip ahead all the way to 2021, and the loonie weakened further as inflation and interest rates really started to take off. And then last week, of course, the dollar just fell sharply off a cliff and tested that kind of psychological barrier of 70 cents. So let's just quickly go backwards through them, right? Last week, Trump, as you announced, announced those tariffs. Literally the second that happened on social media, the dollar fell one full cent down right to 70 cents.

It did climb back to 71 cents, but a sense there of what those tariffs would mean for the Canadian economy, for Canadian exports, which is such a big part of the Canadian economy. But it's important to recognize it was falling from a point of weakness already, right? 2021, we saw the dollar really begin to slip, mostly because the U.S. economy was really chugging along and doing well. As Canada was fighting inflation, we brought in higher interest rates, which slowed the economy here. And you began to see a split in the interest rates charged in the United States versus here. That saw the dollar fall further. But again, it was already weak because when the price of oil fell off a cliff in 2015, the dollar

absolutely tanked back then and has kind of stayed in this lower band than we've been used to in the previous 10 years. It's impossible not to point out another big event happened, of course, in 2015. There was an election here, and that was the beginning of Justin Trudeau and the Liberals taking power. They introduced the Impact Assessment Act, that's C-69. There was a change in how we approached business investment in this country, and that was tied in as well. But the big driving force in 2015 was the just collapsing price of oil, you'll remember. So, you know, you put those three things together, the falling price of oil in 2015,

the split with the United States in terms of interest rates and divergence in the economy in 2021, and then bang, these tariffs come out of nowhere on social media. And you can sort of understand how we're kind of hovering around 71 cents to the dollar. I was going to ask you who feels the pinch of a lower dollar,

but I guess the answer is all of us, right? Yeah. If you buy anything from the United States, you're paying more for it, right? Like my daughter and I went down to the Bills game, the Chiefs and Bills playing in Buffalo just a few weeks ago. And like, I do this for a living. And I, when the, the, the sort of, you know, uh, FX version of my, of my hotel bill came through on my credit card, I was like, what happened here? You know, anytime. And so if you're importing

food, if you're importing machine parts, if you're importing clothing, if you're, as you said, at the beginning, if you're shopping on Black Friday, you're noticing this. I mean, it's not just folks who are heading south of the border, but it's presumably those, that impact will impact your gas prices, it will impact what you see at the grocery store and the inflation that people have been pulling their hair out for years over here in this country as well. For sure. And remember, we export a ton of oil to the United States, but we import an awful lot of gasoline from them. And so that exchange rate really starts to get into play there. And yeah, food.

I mean, in our line of work, in my little unit in the business unit at the CBC, we're always talking to the food terminal in Toronto. We're talking to grocery chains across the country about where they're getting their food. And a lot of it does come from the United States. There's a psychological effect to this as well. You talked about that, you know, the mental barrier of 70 cents or so. What's the psychological impact of a lower dollar? Well, you know, it's a funny thing, right? Because I think a lot of us, and I count myself in this, in spite of the fact that I know I shouldn't, we kind of, when the dollar's doing well, right?

You only have to go back to 2011, 2012, when the dollar was above parity with the United States. And when the dollar is doing well, we all kind of puff out our chest and say, look at how strong the Canadian economy is. Everybody wants our currency and isn't that fantastic. And then conversely, when it falls, we sort of, you know, hang our heads in shame and think, oh, this is a disaster. This is so bad for the, you know, it's like a proxy for how we feel. It's almost like an opinion poll about the economy when it's not. It's a reflection of all these various different things and these different sort of chunks of time that have done different things to the dollar. And lest we forget, when the dollar is low, exporters in this country do very well.

I was going to say, who benefits from something like this? Yeah, I mean, so literally most of the Canadian economy benefits because we make grain, we sell food, we sell wheat to the United States. If you're selling at $1.41, right? It's 70 cents Canadian, it was $1.41 to the US. If you're selling US dollars, you're making more money. I spoke with a fairly small oil producer in Alberta named Paul Colburn. He works with Surge Energy. named Paul Colburn. He works with Surge Energy. He was telling me that a barrel of oil is right now trading around $71 per barrel. They're getting like $97 a barrel when you work in the exchange rate. So it's fantastic for them. You've got anybody who sells anything in US dollars. And look at what we do across the country. Lumber, grain, car parts, cars,

all the exports we've been talking about through this discussion around tariffs, those are all companies that have benefited enormously from a low dollar. Is Paul Colburn entirely happy about the boost that he gets from being paid in US dollars? Again, there's so much sort of, you know, like almost counterintuitiveness going on when you talk about the dollar. And no, Again, there's so much sort of, you know, like almost counterintuitiveness

going on when you talk about the dollar. And no, Matt, he's not. He's actually livid. He's furious about what's happened because he sees it as an erosion of the public purchasing power. He sees it as a reflection of confidence in the Canadian economy. He sees it as a reflection of confidence in the ability of investors and of companies to invest in Canada. And that, he says, is a huge problem. He talks about the Impact Assessment Act, that C-69, and the impact that's had on driving down investment, foreign investment in this country.

He said, in the piece that you wrote, he said that our standard of living in this country has dropped, what, 35% to 40% compared to the United States in the last eight years. For sure. Is that accurate? I mean, there's a political dimension perhaps to that as well. But is that accurate?

There is. And it's important to sort of keep that political dimension in place. But remember, those sort of dueling things that happened in 2015. Yes, most of it was driven by the collapse in global oil markets. And Canada got just clobbered by that. But at the same time, there was the beginning of a government that had a carbon tax, that had this Impact Assessment Act, that did slow down investment in some of the bigger, you know, like I don't think there's been a single mine, for example, cleared and approved under the Impact Assessment Act since that bill went into place. cleared and approved under the Impact Assessment Act since that bill went into place. That's the kind of thing he's talking about and the impact it has on his ability, because he's not just the CEO of a company that's making more money as a result of the dollar.

He's also an individual like me and you who's trying to buy stuff for Christmas on Black Friday and sees that the dollar isn't doing as well as he thinks it should. And remember, for all of those years, the Canadian dollar was, we called it a petro currency. When the price of oil was up, the Canadian dollar went up. And when the price of oil went down, the Canadian dollar went down. There has been something of a decoupling since 2015. And how much of that is the political aspect of a new government coming in? How much of that was, you got to sort of factor in how big of a new government coming in, how much of that was, you got a sort of factor and how big of a factor COVID was. And then all of these interest rates, the Canadian economy is so much more interest rate sensitive than any other economy, not any other economy, but almost all of the other

economies that we consider our peers because we have these sort of short-term mortgages. So I'm getting clobbered by higher interest rates on my mortgage in a way that, you know, somebody in a similar position in the United States has a 30-year mortgage. Even if those rates change, the amount they pay every month hasn't changed as much. So we really are a lot more sensitive in this country. Two things in the minute that we have left. One is you have the prime minister jetting down to Mar-a-Lago to speak with Donald Trump. There's apparently a meeting that's going to be held today with the opposition leaders about the Canada-U.S. issues. If Donald Trump goes ahead with these tariffs, what does it mean for our dollar? Well, I think, you know, the forecast even before these tariffs came in was that the dollar would probably fall to around 68 cents, so fall further than it has

now. There's an interesting sort of dynamic that we saw the dollar fall off a cliff when the announcement was made, and then it started to climb its way back. And that tells me, at least in part, that the investors, the markets, don't necessarily believe Donald Trump, that he'll go through with all of this. They see it as a threat or an opening bargaining position

in a broader conversation around trade in North America. But if he, in fact, started to impose a 25% tax or tariff on all goods, including energy and oil products going in the United States, it would have an immediate and very bad impact on the Canadian economy. The dollar would fall further. Inflation would shoot up. Interest rates would rise. It would be bad across the board. And so just in a word or two, I mean, the last question is the 71 cents that we're at right now, that's not a floor for you. No. And in fact, those are the exact words I used when I talked

to a couple of analysts when I was writing that piece you talked about. It was 71 cents a floor. And they both sort of looked at me and were like, no, no, no, not at all. And they see it falling, as I say, to 68 cents. Fashion your seatbelts. Peter, thank you very much. You bet. Peter Armstrong, senior business reporter here with CBC. For more CBC podcasts, go to cbc.ca slash podcasts.