Will gas prices go up with a weakening Canadian dollar?

The Canadian dollar has plummeted recently, reaching a four-year low last week versus the US dollar.

It has gained some ground over the past few days, but still remains quite low compared to recent months and periods over the past few years.

The Canadian dollar traded for 71.63 cents US Thursday compared with 71.46 cents US on Wednesday.

Katherine Judge, director and senior economist with CIBC Capital Markets, recently told The Canadian Press that she expects the Canadian dollar to hover around current levels for the remainder of the year.

“We haven’t seen these levels in a long time. I think we have certainly breached a level that is worrisome,” Judge said.

“There’s a lot of factors at play and a lot of uncertainty over the next few months.”

A weak loonie has impacts on numerous areas of the Canadian economy.

Many consumers may not be fully aware of the impact that it has on their daily purchases, including one of the most common and costly expenses: gasoline.

“It’s the elephant in the room that no one ever talks about,” said fuel price expert Dan McTeague of GasWizard.ca, who is also the president of Canadians for Affordable Energy.

“The loonie is really suffering and it’s limping. It’s costing us a lot more than we can possibly imagine,” he added.

McTeague said every time he does his gas price predictions, he has to take into account the Canadian dollar exchange rate versus the US dollar.

Commodities, such as oil, are normally priced in US dollars, regardless of where it comes from, given the currency’s world prominence and stability. So when the Canadian dollar declines compared to the US dollar, that means Canadian consumers have to pay more at the pumps.

With gas prices currently at $1.549 per litre in the Greater Toronto Area, a significant portion of that price is attributable to the exchange rate.

“A full 25.2 cents of that here in Ontario is the result of a weak loonie that isn’t staying on par with the US greenback,” McTeague said.

For comparison, the federal carbon tax adds roughly 20 cents per litre, McTeague said.

Both of those figures include HST.

That means if you purchase 40 litres of fuel, $10 of the final price will be due to the exchange rate.

“We can complain about taxes and we can certainly point out the carbon taxes at those prices, but … for now, the big enchilada is the weakness in the Canadian dollar,” he said.

“And it is having a stinging effect that a lot of people are not aware of.”

“It is getting worse,” he later added.

There have been times in the past where the Canadian dollar was around parity with the US dollar, including in the early 2010s, though typically it is valued lower than the US dollar.

“You want the Canadian dollar low enough that it’s an attractive place for firms to invest and hire at a competitive wage, but you don’t want it so low that you start importing inflation,” Judge told The Canadian Press.

She said the loonie is so low right now that the balance has tipped too far in one direction.

McTeague suggested he believes the loonie should be much higher than it is, and a low currency shouldn’t be needed to attract investment.

“We are a leading G7 nation,” he said, noting Canada has a lot to offer.

McTeague acknowledged that there are a number of factors at play regarding the weak loonie, including interest rates and wider economic health, but he said increasing energy exports would strengthen the economy and in turn, the dollar.

“It has a lot to do with, I think, a matter of confidence. Canada could double the amount of exports that it has in energy, and it doesn’t do it,” he said.

McTeague noted that the last time the loonie was this low, it coincided with the beginning of the COVID-19 pandemic.

“COVID, you can understand. This is pure and simple: the country has failed to attract, and it’s becoming less and less attractive to the rest of the world, and that has to be a wake-up call, not just for policymakers, but for Canadians who should demand better of their representatives,” he said.

CIBC recently published an updated forecast through December 2026, which shows the loonie hovering in the 0.71 to 0.73 range compared to the US dollar.

— With files from The Canadian Press