What Happens to the Canadian Dollar in a Recession? Not What You Think

The Canadian dollar does not fall in a recession because Canada is "weak". It falls because it is a commodity, risk-on currency, and recessions hit commodity prices, interest-rate gaps and risk appetite all at once. But oil is only one input, and right now it is not the one in charge.

I think of the loonie as a system with three inputs, and the exchange rate is whatever the weighted sum says.

Commodity prices. Canada sells oil, metals and lumber priced in US dollars. When those prices fall, fewer US dollars flow in to be converted, and the Canadian dollar loses a natural source of demand.

Read the full article on Medium →