Choose your settings

Choose your language
Economic Viewpoint

Exchange Rates and Diverging Interest Rates

The Loonie Could Prove Resilient Once Again

July 23, 2024
Hendrix Vachon
Principal Economist

Interest rates in Canada and the US have followed separate paths for several months now. In fact, if the Bank of Canada cuts its policy rate faster than the Federal Reserve over the next year and a half, some interest rate spreads are expected to widen even more, especially spreads on shorter term rates. This will keep the Canadian dollar under pressure. Lower interest rates make investments denominated in Canadian dollars less attractive than those denominated in US dollars. But exchange rates are influenced by a whole range of other factors, and the loonie could ultimately prove more resilient than some people may think. For example, back in 1996 and 1997, interest rates in Canada fell far below US rates, but the loonie wasn’t really affected.

NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.