Increasingly, it looks like the Canadian currency, and ultimately the standard of living tied to it, is where economic pressure will surface first. Photo by Brent Lewin/Bloomberg

Article content

Article content

What concerns me even more is the level of complacency among parts of Carney’s voter base, largely because many have not yet felt the impact of the cracks forming beneath the surface. Those cracks are already there, just not evenly distributed. The strain is increasingly concentrated among lower-income Canadians, particularly younger people, immigrants, single parents and seniors, many of whom are already showing up in record numbers at places like our food banks.

Article content

Article content

Article content

Let me start with monetary policy. The Bank of Canada recently held its overnight rate at 2.25 per cent, one of the lower policy rates in the G7 at a time when inflation risks are clearly re-emerging. At the same time, the European Central Bank just raised rates by 25 basis points, its first hike since 2023, in response to renewed energy-driven inflation pressures. South of the border, United States producer prices are now running at 6.5 per cent year over year, the highest level since November 2022, highlighting that inflation pressures are beginning to build again in the system. It’s naive to assume those pressures stop at the border.

Article content

Article content

Canada, by contrast, is effectively trying to hold rates lower into this backdrop. The rationale is clear, given its significant debt load, as higher interest rates would only add to an already growing fiscal burden. But that doesn’t eliminate the risk, it just redirects it, and increasingly the Canadian dollar is where that pressure shows up.

Article content

Debt servicing costs are already becoming a meaningful drag. Ottawa’s interest charges are running at roughly $54 billion annually, consuming about 11 per cent of federal revenue and rising. That is before factoring in what happens if rates need to move higher again. In effect, monetary policy is increasingly constrained by fiscal realities.

Article content

Article content

This is where the currency comes into play. Interest rate differentials matter. When a country keeps rates lower relative to its peers, capital tends to flow elsewhere in search of higher returns, putting downward pressure on the currency. We are already seeing this dynamic unfold, with the Canadian dollar weakening meaningfully this year and, in my view, at risk of soon breaching $0.70 against the U.S. dollar again if the gap persists.

Article content

Article content

This has direct implications for Canadian investors and portfolio managers. A weaker currency doesn’t just reflect underlying economic pressure, it actively shapes outcomes by eroding purchasing power, distorting returns, and increasing reliance on foreign assets to preserve real wealth. For those managing capital, it forces difficult decisions around currency exposure, asset allocation and where best to deploy capital.

Article content

Now overlay that with what I believe is a largely underappreciated risk: the future of the Canada-United States-Mexico Agreement (CUSMA, or the USMCA, depending on your perspective).

Article content

Based on the comments to my social media posts on X, there appears to be a profound misconception that the agreement locks in North American trade stability through 2036. It does not. Under Article 34.6, any member, including the United States, can exit with six months’ notice. The 2026 review and 2036 timeline only matter if all parties choose to stay in the agreement so that distinction is critical.