The Loonie’s Strength Abroad vs. Its Weakness at Home
For some time, we’ve maintained a bearish stance on the Canadian dollar. Domestically, we’ve been correct—purchasing power continues to erode as prices rise. Yet, in the foreign exchange markets, the loonie still enjoys more respect than it deserves.
It’s time to strip away sentiment and evaluate the Canadian dollar against real value—gold. The results aren’t flattering. While the loonie may appear stable on paper, the underlying economic policies suggest inflationary pressures are only just beginning.
Inflationary Implications of Indian Act Amendments
Recent proposed changes to the Indian Act reveal another layer of government policy that risks long-term inflation. Ottawa is currently reviewing legislation that would eliminate certain gender inequities in the Act, potentially extending First Nations status to roughly 6,000 new individuals.
While the initiative aims to correct historic injustices, critics warn that it may also establish new perpetual entitlements—expanding federal obligations and adding another layer of regulation to an already complex system. This, in turn, increases fiscal pressure and fuels domestic consumer price inflation.
Concerns Raised by Liberal MP Jaime Battiste
Liberal MP Jaime Battiste, who serves on the House of Commons committee on Indigenous issues, has cautioned that the Senate may be moving too quickly. He warned that sweeping amendments could have intergenerational effects on how First Nations status is determined:
“It’s not something that we should rush into and put an amendment in that potentially impacts generations of First Nations status Indians.”
Battiste emphasized the need for proper consultation with Indigenous communities before expanding eligibility, noting that identity and lineage within First Nations are complex and deeply rooted issues.
“Mathematical Genocide” and the Second-Generation Cutoff
Some First Nations leaders argue that the second-generation cutoff, introduced in 1985, could erase their communities entirely from legal recognition. Under this rule, individuals with both a parent and grandparent lacking status cannot register under the Act.
Marilyn Slett, chief of the Heiltsuk Tribal Council, described the situation as “mathematical genocide,” warning that many communities could become legally extinct within three or four generations. She further noted that women and children continue to suffer from long-term harm caused by discriminatory rules, resulting in cultural and familial disconnection.
While the intent behind the proposed amendments may be noble, the financial and administrative consequences could be vast—introducing new obligations that Ottawa must fund indefinitely.
Mark Carney’s Balancing Act: Emissions Caps and Economic Consequences
Prime Minister Mark Carney has now shifted his tone on Canada’s emissions cap for oil and gas producers. Responding to reporters in Ottawa, Carney indicated that the future of the cap “depends” on the success of other emission-reduction strategies—a departure from his pre-election commitment to maintain the measure.
The proposed cap, scheduled for 2030, would require upstream oil and gas operations to cut emissions to 35 percent below 2019 levels. Carney’s approach appears consistent with his broader support for ESG frameworks, carbon taxes, voluntary carbon markets (VCMs), and subsidies for sectors aligned with his investment interests.
While these policies are framed as environmentally responsible, they impose significant regulatory and cost burdens on Canada’s most productive industries—energy, mining, and manufacturing. The result is slower growth, higher costs, and declining competitiveness.
Layers of Regulation, Layers of Cost
In practical terms, these environmental and social governance policies function as price controls—interventions that rarely succeed in market economies. They create distortions, discourage investment, and eventually contribute to higher domestic prices.
The accumulation of such regulations, combined with new entitlements under the Indian Act, is profoundly inflationary. It represents not only government overreach but also a fiscal strategy that relies on perpetual monetary expansion to fund itself.
The Coming Pressure on the Canadian Dollar
The Canadian dollar’s apparent stability may be deceptive. Historically, currencies reach a breaking point—a moment when investors anticipate years of sluggish growth and begin exiting en masse.
While this reckoning has been delayed—perhaps due to post-pandemic optimism—the structural weaknesses of the Canadian economy remain:
- Overleveraged consumers
- Stagnant productivity
- Rising government spending
- Heavy regulatory interference
As the U.S. economy potentially slows, capital is unlikely to view Canada as a safe haven. Even if the U.S. dollar weakens relative to gold, it remains a stronger and more liquid position than the loonie.
The Bank of Canada may be forced to raise interest rates to prevent a steep currency decline, but doing so will only deepen domestic financial strain. In short, the loonie faces mounting headwinds on every front.
Final Thoughts
Canada’s economic policies—whether through expanded entitlement programs or ESG-driven industrial controls—are setting the stage for persistent inflation and declining competitiveness. Investors should prepare accordingly.
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