Economic growth in Canada is slowing at a concerning rate. The country has been grappling with numerous issues that have contributed to this, including escalating US tariffs and trade tensions, rising unemployment, and a rapidly aging population. To counter this issue, the Bank of Canada has taken several steps, including implementing a series of interest rate cuts.
Unfortunately, the reduction in interest rates has hurt multiple aspects, including the value of the Canadian dollar. Here’s an overview of how this is panning out and what investors can do to protect their portfolios and optimize returns.
BoC Policy: Positioning Canada Ahead of Other G7 Central Banks
The Bank of Canada has been trimming interest rates at an interesting pace, moving faster than many G7 central banks. This authority cut its overnight rate by 25 basis points in January and March 2025. And since then, rates have fallen from over 5%, the average in early 2024, to 2.75%, the current policy interest rate.
Reducing overnight rates comes with numerous perks, including lower borrowing costs. If you’re a financial investor, you have good reason to celebrate, as you can borrow money for investing in assets like stocks and bonds without worrying about escalating costs. That said, increase your odds of enjoying fair trading practices and optimum security by using regulated forex brokers in Canada, such as AvaTrade.
The Loonie: Feeling the Pressure
The Canadian dollar reached a two-month low against the US dollar in late July 2025. Several factors catalyzed this trend, starting with the BoC’s stance. As discussed in the previous section, the Bank of Canada has been cutting policy interest rates by significant margins since 2024. In late July, the institution announced its intention to hold the rate at 2.75%.
Interest rate cuts and holds offer dovish clues. In other words, they often indicate that the economy isn’t doing so well and the central bank is trying to stimulate it. And when interest rates drop, most investors abandon their home currency and seek better returns elsewhere. This is one of the reasons the CAD is weakening in mid-2025.
Portfolio Positioning: Finding the Balance
If you’re an investor based in Canada, the highlighted occurrences should have real implications for your trading and investment endeavors. For starters, the weakening Canadian dollar offers y the opportunity to add USD/CAD pairs to your portfolio and profit from fluctuations. However, don’t focus solely on currency pairs.
You should consider optimizing returns by investing in stocks from the US and other regions with stronger currencies. Once you convert your returns, you’ll have more Canadian dollars courtesy of the weakening home currency. Additionally, diversify into sectors that often perform well when the Loonie falls, such as energy and mining.
Final Thoughts
The BoC is proactively trying to stimulate economic growth by ensuring policy interest rates remain low. That said, the cuts and holds are an indicator of a delicate balance that every trader and investor should be aware of. Put yourself in the best position to benefit from the current situation by researching the best interest rate-sensitive financial instruments to invest in. Also, ensure you hedge currency exposure if your portfolio has CAD assets.
Media Contact
Company Name: Avatrade
Contact Person: David
Email: Send Email
Country: Canada
Website: https://www.avatrade.ca/
