Canadian Dollar Edges Lower as BoC Resumes Its Easing Campaign

The Canadian dollar slipped against the U.S. dollar on September 17, 2025, after the Bank of Canada (BoC) lowered its policy rate by 25 basis points to 2.50%. The loonie’s decline reflects investor expectations that the central bank has begun a new cycle of monetary easing, with the possibility of additional cuts before year-end.

Immediate Market Reaction

Currency traders reacted swiftly to the rate cut announcement:

• The Canadian dollar weakened to just under 1.39 per U.S. dollar, marking a modest slide compared to earlier in the week.
• The shift was largely anticipated by markets, but the BoC’s statement reinforced expectations that it would continue cutting rates if inflation stays subdued.
• Bond markets echoed the sentiment, with 5-year government yields dipping, putting further pressure on the loonie.

Why the Loonie Fell

The loonie typically reacts to changes in relative interest rates. When Canadian rates fall compared to U.S. or global benchmarks:

• Capital Outflows Increase: Investors move money to higher-yielding assets abroad, weakening demand for the Canadian dollar.
• Exports Gain an Edge: A weaker loonie can benefit exporters by making Canadian goods cheaper in foreign markets.
• Import Costs Rise: On the downside, imports become more expensive, potentially adding mild inflationary pressure over time.

Implications for Mortgage Borrowers

While the currency story might seem distant from household finances, the loonie’s movement is closely tied to mortgage dynamics:

• Bond Yields and Fixed Mortgages: A weaker currency often leads to lower government bond yields as foreign investors buy safer assets. This helps push fixed mortgage rates lower.
• Inflation Watch: If import costs rise due to the weaker loonie, it could partially offset disinflation trends, influencing how far the BoC can cut rates further.
• Renewal Costs: Borrowers renewing fixed mortgages in 2025 may still face higher payments than in the 2020–2021 low-rate period, but the easing cycle and weaker loonie both point to a softer landing than feared.

Analysts’ Take

• Short-Term Outlook: Analysts expect the loonie to stay under pressure, especially if the BoC signals another cut before the December meeting.
• Long-Term View: Currency strategists suggest that if the Fed holds rates higher for longer, the gap between U.S. and Canadian rates could widen further, deepening the loonie’s weakness.
• Mortgage Market View: Brokers see this as an opportunity for homeowners considering 5-year fixed terms; lower bond yields could lead to rates dipping under 4% in the coming weeks.

Housing Market Impact

A weaker currency combined with falling interest rates can boost housing activity. However, affordability remains a barrier, especially in Toronto, Vancouver, and Calgary, where prices are already elevated. The BoC’s move could spur more buyers into the market, but housing supply constraints continue to limit access for many households.

The Canadian dollar’s slip after the Bank of Canada’s rate cut underscores the interconnectedness of monetary policy, currency markets, and household finances. For mortgage borrowers, the easing cycle could bring some welcome relief—but it also adds new layers of uncertainty as Canada navigates a weaker economy and shifting global dynamics.