Canada’s competitive disadvantage

The Canadian dollar (CAD) has spent more than a decade in undervalued territory, drifting below its estimated fair value. Based on CIBC Asset Management’s valuation metrics, the last time it screened as fairly valued was in the spring of 2015, with fair value estimated at approximately 83 U.S. cents. Since then, CAD has consistently traded in undervalued territory against the U.S. dollar (USD).

A significant factor contributing to this undervaluation has been a widening competitiveness gap between Canada and the United States. This gap is evident in the relative performance of Canada-U.S. labor productivity, and is even more striking when examining the deterioration of Canada’s manufacturing sector. Since 2018, Canadian manufacturing activity has contracted by 5%, signaling a troubling trend of economic erosion. In contrast, the U.S. manufacturing sector has expanded by 10% over the same period, highlighting a stark divergence in industrial growth.

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