By Michael O’Neill

Analysts are resorting to divination to find reasons to like the Loonie. They’ve tried tasseography (reading tea leaves), molybdomancy (interpreting shapes from molten lead in water), and geomancy (reading patterns from dirt). They found no answers. Had they practiced pyromancy, they may have concluded that the best strategy is to take the currency and burn it because, at the moment, it is hard to like the Loonie.

Economy on the Skids

The Bank of Canada’s (BoC) economic outlook just two weeks ago is certainly not an endorsement for the currency. Domestic economic growth has stalled, inflation has cooled, and the output gap has widened, with GDP sitting 0.5 to 1.5 percent under capacity. Exports are being throttled by U.S. tariffs, and productivity is flat. Canada is treading water, waiting for momentum that shows no sign of returning anytime soon. There is good news. Canada gained 120,000 jobs in the past two months, although more than half of them were part-time. And as long as those part-time wages are $27.50 an hour, people can afford to live in Toronto, according to the Ontario Living Wage Network.

Confused Market Participants in BoC Survey

Market participants appear confused, at least those participating in the BoC survey. Most respondents see only marginal growth ahead, with median GDP forecasts of 0.6 percent for 2025 and 1.7 percent for 2026. Nearly nine out of ten believe the economy is operating below potential and will remain that way for some time. Recession risks are uncomfortably high, with a median 35 percent probability over the next six months. The downside risks are familiar: renewed trade tensions, weaker household spending, and a soft housing market.

But inexplicably, they think those conditions will boost the currency. Participants expect the Canadian dollar to strengthen gradually through 2026, a view that does not jibe with the broader pessimism about growth, demand, and steady monetary policy. It’s a disconnect that may have more to do with sentiment than reality.

The Bank of Canada on Hold

October’s data will not change the BoC’s trajectory and is likely to sit tight in December. The central bank already delivered back-to-back cuts in September and October, taking the overnight rate to 2.25 percent. The mixed employment picture supports the decision. Wage growth is firm but not dangerous, productivity is stagnant, and inflation is easing toward 2.5 percent.

Other indicators back the pause narrative. The Business Outlook Survey from October 20, showed a softening labour market. Hiring intentions were near levels that historically precede a rise in unemployment, and the share of firms reporting labour shortages is the lowest since the 2008–09 crisis.

Fiscal Focus on Everything But Oil

Ottawa hasn’t helped. The federal budget says it has a “Canada Strong” plan, but its chances of success are slim to none because it fails to exploit proven oil reserves worth over $10 trillion.  Mr. Carney thinks the money bonanza from oil pipelines is “boring,” preferring to commit the government to spending $213 billion of money it doesn’t have on “nation-building” projects.  Those projects include an LNG project in B.C., a nickel project in Ontario, and a hydro-electric development in Iqaluit. That approach is more “Canada Kneecapping” than Canada Strong.

And Then There Are Tariffs

They are not going away, even if the Supreme Court rules Trump did not have the authority to impose tariffs. The White House will revert to using national-security issues: Section 122 of the Trade Act that lets the President impose 15 percent tariffs for 150 days and Section 338 which allows for the imposition of 50 percent tariffs to counter discriminatory trade practices.

The Prime Minister apologized to Trump for an Ontario ad “Ronald Reagan on Tariffs,” that ran in major U.S. markets. Carney’s “elbows in” approach does not bode well for the Canada-U.S.-Mexico Agreement on trade (CUSMA) negotiations when the mandatory six-year review begins officially in July 2026.

It’s Not All Doom and Gloom

Canada’s economy still has some good points. The Bank of Canada hinted that it had hit the pause button when it cut its benchmark rate to 2.25 percent at the end of October. Friday’s Canadian employment report supported the decision. The pending U.S. economic-data deluge, which may occur as early as Friday, will keep the focus squarely on the U.S. dollar, and that should be enough to limit Canadian-dollar losses in the near term.

It may be hard to like the Loonie, but even harder to like the greenback.