Our Loonie Market

At $0.69 USD, we believe the Canadian dollar is unlikely to fall much further from its current level.

This is a contrarian stance, as many expect the loonie to continue its decline due to more aggressive rate cuts by the Bank of Canada compared to the Federal Reserve.

We actively seek contrarian opportunities—investments in ideas that are temporarily out of favor. Today, Canada fits that description.

Global sentiment toward Canadian investments is at an all-time low, and we believe it has nowhere to go but up. We expect both investor confidence and the Canadian dollar to improve for two key reasons.

A Change in Government is Coming

Over the past decade, Ottawa has burdened businesses with increased regulations, higher taxes, and a focus on political correctness—an approach that many democratic nations are now rejecting at the ballot box.

We anticipate a change in government this spring, leading to a reversal of many policies enacted in recent years. Expect a rollback of the capital gains tax inclusion rate, the removal of excessive regulatory red tape, and more favorable tax policies for businesses operating in Canada.

At this point, it would take a political miracle for the Liberals to retain power. Regardless, we foresee the Liberal Party shifting back toward the center, much like Jean Chrétien and Paul Martin did in the 1990s.

Historically, the S&P/TSX Composite’s performance has been mixed when Canada and the U.S. are led by a Conservative and a Republican, respectively:

• 1957-1960 (Diefenbaker & Eisenhower): -3.7% per annum
• 1984-1992 (Mulroney & Reagan/Bush): +5.0% per annum
• 2003-2008 (Harper & Bush): -2.7% per annum

However, we don’t see historical precedent as particularly useful—neither Trump nor Poilievre resemble past leaders in their approach to governance.

25% Tariffs Won’t Begin on February 1

Since Trump’s election in November, the Canadian dollar has depreciated by over 3%, from approximately $0.72 USD to $0.69 USD today.

Despite concerns, we do not believe that a 25% tariff on all Canadian exports will take effect on February 1, especially if Canada retaliates.

Consider this: Michigan alone sends 40% of its exports to Canada. With seven of Michigan’s 13 congressional representatives being Republican—all of whom are up for re-election in November 2026—voter backlash from their border-state constituents could derail Trump’s ability to push his legislation through a narrowly divided 218-215 Republican-controlled House. In addition to Michigan, Canada is also the top export market for 35 other U.S. states.

Instead, we anticipate Trump will announce smaller, phased-in tariffs with specific exclusions, using them as a bargaining tool until the USMCA renewal deadline on July 1, 2026. With 17 months to go, this could equate to an incremental increase of approximately 1.5% per month, depending on the severity of Canada’s retaliatory tariffs.

Final Thoughts

The Canadian dollar is deeply out of favor, but we see catalysts on the horizon that could drive a reversal. A potential shift in government and a more measured tariff policy should help stabilize investor confidence, creating opportunities for those contrarians willing to invest against the crowd.

-written by Jeff Pollock