The Canadian economy is presently facing a perfect storm of adversity that is weighing heavily on the value of its currency. The latest news indicates that the Canadian Dollar (CAD) has fallen to a 20-year low. This decline is particularly acute on the US Dollar (USD) given a number of converging economic pressures. Tariffs are making a big difference. At the same time, we are going through a roiling housing affordability crisis and a real estate recession. As of Tuesday, the CAD was still losing ground, a more ominous and precarious sign for the health of the nation’s overall economy.
Yet the decline in the CAD is symptomatic of a deeper malaise in Canada’s economic framework. What was once considered a pillar of economic strength in the housing market started to weaken. Recently, it has begun to reveal chinks in its armor, creating a cloudier financial picture. As the economy continues to fight for its balance sheet, the effects on the CAD are starkly starting to appear.
Tariffs and Their Economic Impact
Tariffs imposed on steel, aluminum and other goods have further compounded the burden on the already struggling Canadian economy. These discriminatory trade barriers have inflated costs for American consumers. At the same time, they’ve erected roadblocks for businesses that rely on imported inputs. The big picture The ripple effect of these tariffs is just starting to be seen, as companies adapt to increased costs and shifting market dynamics.
As businesses and policymakers continue to navigate these uncertainties, consumer confidence is beginning to crack. That sentiment can be seen in spending trends, with households cutting back while bracing for a potential deepening recession. This double whammy of tariffs and increased consumer caution has led to anemic growth in the overall economy, which only increases downward pressure on the CAD.
Additionally, the mounting costs from tariffs have been a major driver of inflationary pressure. When prices go up, consumers have less buying power, leading to a vicious cycle that increases economic hardship. Yet the Canadian government is under growing pressure, including from indigenous leaders, to address these deficiencies, though solutions are complicated and politically fraught.
Housing Affordability Crisis
Millions of Canadians are confronting a serious housing market crisis in affordability that is bringing very real harm’s solution for many residents. When new housing prices dropped more than expected in August, fears were renewed over the homeownership crisis facing our country. As prices continue to fall, this is forcing more and more potential buyers out of the market. This makes demand even lower and drives down real estate transactions even more.
The impact of this crisis is twofold. First, it impacts all Canadians who are unable to afford housing. More would-be buyers are sitting on the sidelines, waiting to make a purchase. They’re opting to rent as home prices continue to increase and interest rates continue to rise. This new, postpandemic consumer pattern is having a profound effect on the housing market.
Second, as I discussed here, the broader implications for our economy are troubling. As a result, the previously buoyant Canadian housing market has changed from an engine of growth to a weight on important economic indicators. Real estate transactions have made their bit steeper, indicating a slowdown in a sector that in the past has cushioned the blow of recessions. The steep decline in soon-to-be-built residential projects is an even clearer indicator of this trend and what to expect for upcoming residential construction.
Currency Performance and Market Trends
As these economic challenges pile on, the Canadian Dollar keeps losing ounces against the Greenback. Tuesday was the biggest decline in that one day where the CAD fell against almost all foreign exchange thus becoming a major fall. For four of the past five sessions, the CAD has continued to have a difficult time withstanding the USD’s onslaught. This slide has led to more than 0.85% drop from peak to trough during this period.
Given that petroleum is still Canada’s largest export, changes in oil prices can have a direct effect on values of CAD. With global oil prices continuing to be quite unstable, many analysts point out that any drops can have fast and direct effects on the currency. Given Canada’s dependence on oil exports for economic security, this relationship between commodity prices and currency strength is key.
Average Canadian bond yields of one to ten years, short-dated bonds, have since fallen below their initial levels. This has been the trend since at least January 2025. Long-dated yields (ten years or more) have increased dramatically from January’s lows. This widening gap is emblematic of changing investor sentiment and may be a harbinger of greater forthcoming changes in both the bond market and currency space.