The Loonie Across the Cycle: A Canadian Family’s Guide to Currency Risk

By Jerry Olynuk, CFA, JD, CFP

Managing Director & Portfolio Manager, Calgary

You own a home in Naples. Your grandchildren attend school in Boston. The family holdco carries a meaningful slice of its portfolio in USD-denominated private credit alongside a long-standing position in US large-cap equities. When the Canadian dollar swings 20 cents against its American counterpart, as it has done in every full decade since the Loonie began free-floating in 1970, the Canadian-dollar cost of each of those obligations changes without a single market having moved against you.

Currency risk is not an exotic exposure that Canadian families choose to take on. It is a structural feature of any Canadian balance sheet that holds assets outside the country or carries obligations denominated in a foreign currency. The question is not whether a family is exposed, but whether the exposure has been sized, positioned, and matched to something the family actually cares about.

What actually drives the Canadian dollar?

The Canadian dollar is, in the language of the Bank of Canada’s own research, a commodity currency. Its value against the US dollar has been inextricably linked to commodity prices, and to crude oil in particular, since Canada adopted a floating exchange rate in 1970. When commodity prices rise, export revenues increase, the current-account balance improves, and the currency strengthens; when commodity prices fall, the opposite holds. This relationship explains why the Loonie surged to parity and beyond during the 2003 to 2007 commodity supercycle, and why it collapsed during the 2014 to 2016 oil price bust that followed Saudi Arabia’s market-share push against North American shale producers.

Commodities are not the only driver. Three additional forces shape the currency’s trajectory. First, the interest-rate differential between the Bank of Canada and the US Federal Reserve: when Canadian rates are elevated relative to US rates, or when the BoC is tightening while the Fed is easing, the currency tends to appreciate as global capital flows toward the higher-yielding jurisdiction, and the reverse tends to drive depreciation. Second, the health of the US economy itself, because the United States absorbs roughly three-quarters of Canadian merchandise exports by value and a weak US consumer is, in economic terms, a weak source of Canadian export demand. Third, global risk appetite: during periods of acute geopolitical or financial stress, capital flees to the US dollar as the world’s reserve currency of refuge, a pattern the International Monetary Fund has documented across every major global risk episode since the 1980s.

In March 2026, all four forces are in play at once. Crude oil sits near US$85 to US$100 per barrel, elevated by the ongoing Middle East conflict, which supports the CAD. The Bank of Canada has cut its policy rate to 2.25 per cent while the Federal Reserve holds at a range of 3.5 to 3.75 per cent, creating a rate differential of more than a full percentage point that works against the Canadian dollar. The US labour market has softened on the margin, reducing the greenback’s safe-haven premium. Accordingly, the Canadian dollar trades in a narrow corridor around US$0.73 to US$0.74, close to its 35-year average but well below the levels that prevailed during the commodity boom of the mid-2000s.

How has the Loonie behaved across five decades?

The history of the Canadian dollar since 1970 illustrates why currency risk is a permanent feature of Canadian wealth management rather than a temporary condition to wait out.

The 1970s: commodity boom and stagflation. The first OPEC oil shock of 1973 tripled crude prices and pushed the Loonie through parity to a high of US$1.04 in 1974. As the US economy fell into recession and Canadian manufacturers complained about the strength of the currency, the Trudeau government imposed wage and price controls, and the Bank of Canada pushed its bank rate to 14 per cent. The currency ended the decade at roughly US$0.86.

The 1980s: political uncertainty and record rates. The Quebec sovereignty referendum and the Bank of Canada’s decision to raise its overnight rate to a record 21.25 per cent in 1981 to combat inflation pushed the Canadian dollar to a then-record low of US$0.69 in 1986. Improving commodity prices, federal deficit spending, and the Canada-US Free Trade Agreement helped the currency recover to US$0.86 by 1989.

The 1990s: deficits and the Asian crisis. Accumulated federal and provincial deficits spooked international investors, and the Asian financial crisis of 1997 to 1998 crushed the commodity prices on which Canadian exports depend, driving the Loonie to US$0.63 in late 1998.

The 2000s: the China boom and the financial crisis. The Canadian dollar began the decade by hitting its all-time low of US$0.618 in January 2002 before China’s industrialization ignited a commodity supercycle that took the currency to US$1.10 in November 2007. The global financial crisis pulled the currency back below US$0.80 in late 2008 and early 2009, before a recovery toward parity by 2011.

The 2010s: oil bust and prolonged weakness. The collapse in crude from above US$100 to below US$30 between June 2014 and January 2016 drove the Canadian dollar from near parity to below US$0.70. The currency spent the balance of the decade fluctuating between US$0.74 and US$0.82, never recovering the levels of the commodity boom years.

The 2020s: pandemic, rate shocks, and energy geopolitics. COVID-19 briefly pushed the currency below US$0.70 in March 2020. A recovery to US$0.83 followed by mid-2021 as commodity prices surged, before the aggressive BoC and Fed rate-hiking cycles of 2022 and 2023 drove renewed weakness. As of early 2026, with the BoC at 2.25 per cent and crude oil elevated by Middle East conflict, the Canadian dollar sits at roughly US$0.73 to US$0.74.

In every full decade since Canada adopted a floating exchange rate in 1970, the Loonie has swung at least 20 per cent against the US dollar. Between January 2002 and November 2007 alone, it traveled from US$0.618 to US$1.10, a total swing of more than 75 per cent in less than six years. A family portfolio that treats currency as a background variable is a family portfolio placing a five-decade bet on history not repeating.

Where does the Canadian dollar stand in early 2026?

The Loonie is caught between two strong forces. On the supportive side, crude oil prices elevated by the Middle East conflict have highlighted Canada’s position as one of the few developed economies with a meaningful net energy surplus; on Statistics Canada data, Canada’s energy trade surplus relative to GDP sits at approximately 4.4 per cent, the largest among major reserve-currency economies, which provides a structural buffer that most of Canada’s peers simply do not have.

On the constraining side, the interest-rate differential between the BoC and the Fed is the widest it has been in years, with Canadian rates sitting more than a full percentage point below US rates, a spread that makes CAD-denominated money measurably less attractive to global capital. The US dollar has also benefited from safe-haven flows during recent periods of geopolitical uncertainty. The Canadian labour market, while not in crisis, has softened relative to its US counterpart, further narrowing the fundamental case for a stronger Canadian dollar.

Forecasters are divided. National Bank of Canada’s economics team projects a gradual recovery toward US$0.76 by year-end 2026 as the rate differential narrows and energy prices hold. Scotiabank and RBC Economics have pointed to a similar range-bound view, with consensus converging on a US$0.72 to US$0.76 corridor for most of the year. The consensus is that a sharp move in either direction would require a significant shift in either oil prices or the BoC-Fed rate relationship, neither of which appears imminent on current data.

For Canadian families, the current level represents a period of below-average purchasing power for US-dollar obligations and, at the same time, a favourable period for the Canadian-dollar value of existing US investments. It is neither an extreme that demands urgent repositioning nor a level where currency risk can be responsibly ignored.

How should Canadian families manage currency risk?

There is no single correct answer to currency management. The right approach depends on the family’s spending currency, the time horizon over which that spending will occur, the size and nature of any cross-border obligations, and the current position in the currency cycle. Several principles, however, apply broadly.

Diversify internationally by default. The Canadian equity market represents roughly 3 per cent of global market capitalization. A portfolio concentrated entirely in Canadian-dollar assets carries concentrated currency risk alongside concentrated country risk. Holding US-dollar, euro, and other international assets provides natural diversification against Canadian-dollar weakness, a principle that Canadian pension giants such as CPP Investment Board, Ontario Teachers’ Pension Plan, and Caisse de dépôt et placement du Québec adopted decades ago and continue to extend.

Be strategic about hedging, not dogmatic. Full-time currency hedging eliminates the risk of a stronger Loonie but also eliminates the benefit of a weaker one. For most UHNW families, a partial hedge that covers a portion of USD exposure, or an opportunistic approach that adds hedges when the Canadian dollar appears overvalued against its long-term average, tends to be more practical than a blanket policy applied regardless of level.

Match currency to liabilities. Families with significant US-dollar spending obligations, such as US property maintenance, US education costs, or snowbird living expenses, should hold US-dollar assets or income streams sized to cover those obligations. Moreover, this is the cleanest form of hedging available to a Canadian family: it matches the currency of assets to the currency of spending without derivatives, cost, or counterparty complexity.

Use the cycle rather than fight it. Investing in US-dollar assets as the Canadian dollar trades above its long-term average can provide growth and income during the inevitable downturn, and reducing unhedged USD exposure when the currency trades materially below that average tends to preserve option value for the next leg of the cycle. The Canadian dollar’s long-term average against the US dollar over the past 35 years is approximately US$0.80; when the currency trades materially above that level, history suggests that increasing USD exposure is favourable, and when it trades well below, as it did in 2002 and during parts of the 2020s, the risk-reward of adding unhedged USD exposure is less compelling.

Monitor the BoC-Fed differential. When the Bank of Canada and the Federal Reserve are moving in different directions on interest rates, currency movements tend to be larger and more persistent than commodity movements alone would suggest. The current environment of BoC at 2.25 per cent and Fed at 3.5 to 3.75 per cent creates a differential that currently works against the CAD; if and when that differential narrows, it could provide a meaningful tailwind for the Canadian dollar.

Manage currency at the entity layer before the hedge layer. For Canadian UHNW families with multiple entities, the most effective currency-management lever often sits in asset location rather than in hedging. Article XVIII of the Canada-US Tax Treaty exempts qualifying US-source dividends from withholding tax when held inside an RRSP, while the same dividends held in a taxable account face a 15 per cent withholding rate. A family with both public US equity exposure and a holdco holding USD-denominated private investments typically benefits from holding the public US equities inside registered accounts and the private USD investments inside the holdco, where capital gains flow through the Capital Dividend Account on eventual exit. Currency exposure, in that sense, is managed at the entity layer first and at the hedging layer second.

Closing

Currency is, in essence, a reflection of the structural forces that have shaped the Canadian economy for generations: commodity demand from Asia, monetary divergence with the Federal Reserve, the relative strength of North American labour markets, and the geopolitics that drive global risk appetite. Families who manage currency exposure as a disciplined component of portfolio construction, rather than as an afterthought noticed only when the Loonie moves against them, tend to preserve purchasing power across the full span of the cycles that every Canadian family will live through.

Frequently Asked Questions

About the Author

Jerry Olynuk, CFA, JD, CFP is Managing Director and Portfolio Manager at Northland Wealth Management, where he leads the firm’s Calgary office and serves on the Investment Committee. Jerry’s professional background combines investment management with legal and tax expertise, including succession planning, cross-border wealth structuring, and portfolio construction for ultra-high-net-worth Canadian families. He holds a Juris Doctor, the Certified Financial Planner designation, and the Chartered Financial Analyst designation.