Canadian effective exchange rate index

Since the international trade of natural resources makes up a large part of the Canadian economy, the Canadian dollar is particularly susceptible to changes in commodity prices. Despite rising oil prices and Canadian-specific oil supply issues persisting, the Canadian dollar has still been affected by high interest rates.

The outbreak of COVID-19 (coronavirus) throughout the world negatively affected the loonie during 2020. Global travel and economic activity declined, leading to an oversupply of oil and a drop in oil prices. This price drop meant that Canadian oil exports were relatively less valuable and the demand of US dollars flowing into Canada and conversely Canadian dollars flowing out of Canada declined, which is paramount given that the United States is Canada's biggest trading partner. However, oil and metal prices soon rebounded quicker than expected which resulted in a drop in demand for safe haven currencies. A partial economic recovery during the second-half of 2020 and into 2021, as vaccines were distributed, led to the loonie appreciating as travel and economic activity resumed to more normal levels. As a result, the CEER began to appreciate by 4.6% over 2021 and stagnated in 2022. The CEER dropped from 2023 to 2024 due primarily to the country's substantial trade deficits with countries such as the US and China. These deficits elevate the money supply within Canada, as more Canadian currency is exchanged into foreign currencies to support growing trade activities, thereby diluting the value of the Canadian dollar. Looking ahead to 2025, the CEER will continue dropping. Persistent trade deficits, coupled with possible US tariffs, may significantly alter trading patterns. Such tariffs could force Canada to find alternative export markets, such as China or Mexico, which typically have less favorable exchange rates than the US. This shift could exacerbate Canada's deficit issues and weaken its dollar's value.