Posthaste: How the upbeat outlook for the Canadian dollar likely just got trashed
The new year started with a bang heard around the world after United States troops attacked Venezuela and abducted its president, Nicolás Maduro.
That, along with other statements by U.S. President Donald Trump regarding Colombia, Mexico and Greenland , has likely upended hopes for an improved economic outlook, including for where the Canadian dollar was headed from here.
Many economists had called for the loonie to enter the year around 72.5 cents U.S. and continue to rise throughout 2026, closing in the range of 74 cents U.S. to 76 cents U.S.
But on Monday, the Canadian dollar was trading down against its U.S. counterpart in the wake of the attack on Venezuela and worries that its heavy crude oil could displace Canadian exports to the U.S.
Since then, the Canadian dollar is down 0.7 per cent and was closing in on falling below 72 cents U.S. for the first time since early December.
Oil markets appeared to have a hand in the loonie’s pullback, “contradicting our long-standing belief that the Canadian dollar should have evolved beyond its petrocurrency reputation to become a real estate-levered proxy for financial conditions,” Karl Schamotta, chief market strategist at Corpay Inc., said in a note.
The price of West Texas Intermediate (WTI), the U.S. crude benchmark, fell 20 per cent last year and was trading around US$57 a barrel on Thursday. Western Canadian Select (WCS), the benchmark for Canada’s heavy crude, fell 25 per cent last year due to a swelling oil glut that is estimated to outstrip demand by about two million to three million barrels a day.
Despite the loonie tracking lower in tandem with oil prices, Schamotta said the currency’s petrodollar days are behind it and that its decline has more to do with a challenging energy outlook.
“Since the abduction of Maduro on the weekend, we have seen lower oil prices acting as a bit of a headwind on the Canadian dollar,” he said in an interview. “This seems to be related to the idea that lower oil prices for a prolonged period of time are going to limit the scale of investment in the energy sector in Canada … that necessarily lowers the growth outlook for the Canadian economy.”
But Schamotta said a global oil market in long-term oversupply isn’t “bullish” for the Canadian dollar.
Charles St-Arnaud, chief economist at Servus Credit Union Ltd., said a 10 per cent reduction in Albertan oil exports to the U.S. would cost the province $13 billion, resulting in a three per cent hit to its gross domestic product. He used the 10 per cent figure since it’s the share of Canadian oil exports processed at U.S. Gulf Coast refineries, which are considered the obvious destination for crude from Venezuela.
He said a growing oil glut could further widen the gap between the prices for WTI and WCS, also hurting Canada’s economy.
Oil prices aside, Schamotta said lower expectations of future interest rate cuts in the U.S. are what’s really pushing down the loonie.
Analysts at the end of 2025 were betting on as many as two cuts by the U.S. Federal Reserve, which would tighten the interest rate differential between the loonie and the greenback and make the former more attractive to investors.
Now, those rate-cut bets are under review.
“We are seeing a hawkish repricing in U.S. growth and monetary policy expectations. Traders came into this year heavily bearish on the U.S. dollar,” Schamotta said, due to expectations of slowing growth, rising unemployment and a Fed ready to cut rates. “Traders are questioning some of those assumptions.”
Sign up here to get Posthaste delivered straight to your inbox.
Prime Minister Mark Carney will visit China next week to talk trade and energy, in the first meeting between a Canadian prime minister and President Xi Jinping in over eight years.
The visit comes as Carney’s government continues to push for a diversified trade strategy, with the goal of doubling non-U.S. exports, amid continued trade tensions with our neighbours south of the border. — Jordan Gowling, Financial Post
Read the full story here.
- Today’s data: Canada and the United States release jobs data for December
- John Manley: What happened in Venezuela can now happen anywhere, and Canadian companies need to be ready
- ‘It’s a big market for us’: As Carney heads to China, trade diversification gets complicated
- Trump once again puts critical Canadian industry in crosshairs
A new year always kicks off the registered retirement savings (RRSP) plan season in Canada. This time, tax expert Jamie Golombek was reminded of a client who said he didn’t believe in RRSPs — a statement that left Golombek dumbfounded. With that in mind, Golombek has written a “love letter” to the RRSP to explain why this way of saving for retirement should be a “no-brainer” for nearly every Canadian. Keep reading here to find out more.
Interested in energy? The subscriber-only FP West: Energy Insider newsletter brings you exclusive reporting and in-depth analysis on one of the country’s most important sectors. Sign up here.
Are you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).
McLister on mortgages
Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus, check out his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.
Financial Post on YouTube
Visit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.
Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, Canadian Press and Bloomberg.
Have a story idea, pitch, embargoed report or a suggestion for this newsletter? Email us at posthaste@postmedia.com .
Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here