Canadian Dollar Clings to Monthly Gain as GDP Beats Estimates

Despite impending U.S. tariff threats, the Canadian dollar stayed constant against the American one. Canada's GDP supported the loonie's meager 0.6% increase in February, which rose by 2.6% in Q4, exceeding projections. As inflation pressures relaxed, bond yields dropped alongside American Treasuries. Still unresolved, though, Canada and Mexico have a looming deadline for possible 25% U.S. tariffs.

Canadian Dollar Rises as Economic Growth Outpaces Expectations

Commonly called the "loonie," the Canadian dollar kept its monthly gains against the U.S. dollar following more than-expected GDP data indicating Canadian economic resilience. Canada's economy expanded by 2.6% annually in the fourth quarter of 2024, surpassing projections of 1.8%, despite challenges including possible U.S. tariffs.

How GDP Growth is Supporting the Canadian Dollar

The loonie, which felt pressured downward earlier in February, has been cushioned by Canada's better-than-expected GDP growth. Consumer expenditures mainly drove economic activity and enabled the Canadian dollar to climb from a 22-year low. Chief currency analyst Adam Button of Forex Live says, "The Canadian economy has certainly faced some headwinds, but it exited 2024 in a stronger position than expected."

Key Economic Indicators Impacting the Canadian Dollar:

U.S. Tariff Threats Cast a Shadow on the Loonie

The impending 25% U.S. taxes on Canadian and Mexican imports significantly cause uncertainty for the Canadian dollar. Linked with worries about fentanyl trafficking, this action might disrupt trade flows and slow down economic growth.

Markets remain dubious about the lifetime of such tariffs even while Canada and Mexico strive to show their progress in slowing the fentanyl flow before the March 4 deadline. Scotiabank's chief currency strategist, Shaun Osborne, pointed out, "The economic consequences for Canada from high tariffs are significant, but they are non-negligible for the U.S."

Bond Yields Fall Amid Inflation Cooling

The fall in Canadian bond yields is another element affecting the dollar's value. Tracking U.S. Treasury movements, yields dropped over the curve, showing a slowdown in U.S. inflation. The Canadian 10-year bond yield fell 4.3 basis points to 2.924%, the lowest since February 3.

Lower bond yields usually lessen a currency's appeal by closing the interest rate differential with other countries. If U.S. tariffs are applied, this dynamic could put extra strain on the loonie.

What Lies Ahead for the Canadian Dollar?

The Canadian dollar's performance will depend on several key factors:

1- U.S. Tariff Decisions: The outcome of the March 4 deadline will greatly affect the loonie's path. Extended tariffs could devaluate the Canadian dollar by impeding trade and slowing economic growth.

2- Consumer Spending Trends: Constant resilience in consumer expenditures could support the currency and help offset outside pressures.

3- Global Economic Conditions: More general macroeconomic trends—including U.S. monetary policy and world trade dynamics—will shape the view of the Canadian dollar.

Is Now the Right Time to Exchange Canadian Dollars?

The current environment offers possibilities and hazards for people and companies engaged in foreign exchange. The loonie's recent consistency might provide a good window to lock in rates before possible volatility connected to tariffs.

Advice on Handling Currency Exchange Through Volatility:

• Track Important Events: Keep updated on important dates, such as the March 4 U.S. tariff ruling.
• Use Forward Contracts: Forward contracts protect companies against future exchange rates.
• Spread Money Holdings: Think about spreading foreign exchange reserves to lower risk.

Conclusion: A Fragile Recovery for the Canadian Dollar

The meager rise in the Canadian dollar in February is a reflection of underlying economic resilience backed by more than expected GDP increase. Still, there are hazards, particularly related to possible American tariffs. The course of the loonie will depend on how geopolitical and economic events turn out as markets negotiate these uncertainties.

In the next weeks, awareness and proactive risk management will be absolutely vital, especially for those tracking the Canadian dollar or organizing money transfers.

FAQs:

Why is the Canadian dollar holding its value?

Driven by higher consumer expenditures, the Canadian dollar was supported by 2.6% in Q4 2024, above-expected GDP growth.

What is the current USD to CAD exchange rate?

As of late February 2025, the USD to CAD exchange rate is roughly 1.4440, or 69.25 U.S. cents per Canadian dollar.

Will the Canadian dollar remain stable?

Important elements including U.S. tariff decisions, consumer spending patterns, and world economic situation will determine the future stability of the loonie.