The Canadian dollar has been one of the weakest G10 currencies this year, pressured by structural weaknesses including low productivity, high debt loads and a fragile housing market. Analysts warn these forces will likely keep the loonie under pressure as other global currencies strengthen.
BNN Bloomberg spoke with Karl Schamotta, chief market strategist at Corpay, says Canada’s reliance on U.S. trade and internal imbalances have dragged down the dollar. He notes that while reforms and global shifts could help longer term, for now the loonie remains stuck in a narrow trading range.
Key Takeaways
- Canadian dollar is among the worst G10 performers this year, pressured by weak productivity, housing and debt.
- Heavy reliance on U.S. trade has made the loonie vulnerable compared with other major currencies.
- Bank of Canada cuts are already priced in, limiting monetary policy’s ability to lift the loonie.
- Currency market volatility remains subdued, but analysts warn complacency could be risky for hedgers.
- Debt-fuelled housing overinvestment is correcting, slowing construction and weighing on jobs, growth and the loonie.
- Short-term range trading expected, but reforms and easing trade tensions could support recovery by 2026.
Read the full transcript below:
ANDREW: The Canadian dollar is among the worst-performing G10 currencies this year against the U.S. greenback. We’re joined by Karl Schamotta, chief market strategist at Corpay. Thanks very much for joining us. Karl, interesting that to some extent we’ve been dragged down by the U.S. dollar?
KARL: Yes. The linkage between the Canadian and U.S. economies has really been the downfall for the loonie this year. Canada’s export situation is so tied to U.S. demand and trade conditions that traders have sold the Canadian dollar, even as currencies like the British pound, the euro and even the yen have appreciated moderately against the dollar.
ANDREW: Can you generalize? I know this is broad, but when the Canadian dollar goes down, is that good for the Canadian economy?
KARL: Great question, Andy. I’d say yes. For a long time, the Canadian dollar was terribly overvalued relative to fundamentals, and that damaged the export sector. It made manufacturers less competitive and shifted activity away from exports toward internal consumption. For years we’ve been correcting that. So I do think a weaker loonie could help the economy recover somewhat over the long term.
ANDREW: We had massive overinvestment in housing, some economists would say, or at least disproportionate investment. It hasn’t done much to help affordability, and now construction is slowing in important markets.
KARL: That’s right. The share of the economy going into residential construction was exorbitant, and because it was debt-funded, it was a major vulnerability for households and the broader economy. It’s good to see some of that correcting, but in the near term it has negative consequences. Slower construction will weigh on employment and GDP growth, and that’s part of the thesis driving the Canadian dollar lower relative to peers this year.
ANDREW: Tiff Macklem, the Bank of Canada governor, faulted the country yesterday for not diversifying its trade away from the U.S. But isn’t America the natural trading partner?
KARL: That’s right. Economists use “gravity models” to show how trade flows, and geography is the biggest factor. Macklem was making a broader point about structural issues in the Canadian economy. He said we should build up domestic markets by reducing interprovincial trade barriers. He stressed that we need to stop talking and actually act, including building better transportation links to move goods to coasts and global markets, and lowering regulation to make Canada more attractive to investment. These are good ideas that have been around for years, but this year the Bank has been blunter in delivering that message.
ANDREW: I’m skeptical. Vested interests will keep provincial barriers high, and bureaucrats aren’t likely to cut red tape.
KARL: That’s a real risk. Businesses lobby for protections in their sectors, which lowers productivity overall. The decentralized governance structure also drags us down and adds to regulatory burden. Hopefully political momentum builds for change, but right now investors aren’t betting on it.
ANDREW: We’re tight for time, but a big factor in the loonie’s weakness has been lower interest rates in Canada and the prospect of more cuts?
KARL: To some degree. But at this point the Canadian dollar is range trading, and so is the U.S. dollar. Markets have already priced in the two expected Bank of Canada cuts, as well as the Fed’s path. Attention is shifting to other drivers, like U.S. equity markets. Central banks may become less central to currency moves in the year ahead.
ANDREW: Karl, always great hearing from you. Karl Schamotta, chief market strategist at Corpay. Thank you very much.
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This BNN Bloomberg summary and transcript of the Sept. 24, 2025 interview with Karl Schamotta are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
