Canadian Dollar Falls Nearly 3% in June, Marking Largest Monthly Decline in Almost Two Years
Claire Weston
The Canadian dollar lost 2.9% in June — its steepest monthly decline since October 2024 — squeezed by a persistent yield gap with the U.S. and growing uncertainty over the USMCA trade deal's future.
How big was the drop?
The loonie fell 2.9% over June, closing at 1.4205 per U.S. dollar (about 70.40 U.S. cents) on June 30, with intraday moves between 1.4184 and 1.4247.
Two forces drove the slide: Canadian bond yields remain well below their U.S. counterparts, and the USMCA renewal outlook has turned murky.
This means → the loonie is caught in a pincer — yield disadvantage on one side, political uncertainty on the other. Solid GDP alone cannot offset both.
The USMCA is "expiring"— what happens next?
The Trump administration is expected to formally declare on July 1 that it will not extend the USMCA, triggering the deal's "sunset clause" — a mechanism that starts a ten-year countdown to automatic termination.
Desjardins macro strategist Tiago Figueiredo wrote: "The upcoming negotiations are critical for the trajectory of economic activity. For now, central-bank officials are likely to stay on the sidelines until clearer signals emerge from the economy and inflation."
In plain terms = the deal doesn't vanish overnight — it begins a slow countdown. But the signal alone is enough to keep markets cautious on the loonie.
Isn't the economy actually doing fine?
Canada's April GDP rose 0.5% month-on-month, the largest single-month expansion in nine months, beating economists' 0.4% forecast. The preliminary May estimate showed 0.1% growth.
Scotiabank head of capital-markets economics Derek Holt said: "Canada never truly fell into recession, and Q2 growth is steadily picking up."
This reflects a contradiction: the economic data are decent, but the exchange rate is driven more by the yield gap and trade outlook. The fundamentals are "good enough" — just not good enough to turn the tide.
What will the central bank do? Where are rates headed?
Markets expect the Bank of Canada to hold its benchmark rate at 2.25% on July 15; bets on a rate hike this year have also been pared back.
Canada's 10-year government bond yield edged up 1 basis point to 3.384% before an early market close ahead of the July 1 Canada Day holiday.
This means → the central bank is most likely to sit tight, waiting for trade talks and inflation data to clarify direction before making a move.
Record foreign demand for Canadian bonds — blessing or risk?
Foreign investors are buying Canadian federal bonds at a record pace, helping to push down borrowing costs for Prime Minister Mark Carney's large-scale infrastructure plans.
The flip side: concentrated foreign holdings could inject more volatility into the bond market — if global risk appetite shifts, the outflow shock would be amplified.
In plain terms = foreign buying lowers the cost of borrowing, a short-term positive. But money that arrives fast can leave fast, raising volatility risk. Whether USMCA talks proceed on schedule is the key variable for judging if the loonie can stabilize.
Content is for reference only, not financial advice.