The Canadian dollar has been in a bit of a slump over the past few weeks, recently sinking to around US$0.71 or so. Undoubtedly, as the Bank of Canada continues to reduce interest rates alongside the Fed, the loonie might not have a chance to strengthen versus the U.S. dollar. And with the Canadian economy facing challenges at the hands of tariffs and pressures on the price of oil, there’s certainly potential for more pain in the loonie before the next big bounce.
Either way, various pundits think that the loonie might actually be in for a bit of a break as it looks to gain a couple of cents going into the new year. And while the Canadian economy seems to be facing more than its fair share of headwinds, I wouldn’t be too surprised to see the loonie rise to the US$0.73–0.75 range by next summer. Indeed, a gain of a few cents to nearly a nickel might not seem like much, but it could mean a great deal for the firms that make most, if not all, of their money on this side of the border.
Who knows? If the Bank of Canada started its rate-cutting cycle first, it might also be the first to hit the pause button. Of course, there’s also a chance that the Fed takes on a slightly more hawkish tilt before the Bank of Canada does. And if that happens, there is the risk of more pain for the Canadian dollar. Either way, here are two stocks I’d check out as the U.S. dollar looks to weaken a bit versus the loonie over the next year.
Magna International
Magna International (TSX:MG) is a Canadian auto-part maker that’s starting to pick up speed, now up over 26% in the past three months. Undoubtedly, the tariff fears were likely overdone, and with so much damage already done to the stock, investors have more reason to be constructive, especially as the auto scene looks to start picking up again.
With a decent past quarter and enough management confidence to hike its guidance, I’m inclined to start viewing MG shares as less of a value trap and more like a deep-value play. The stock trades at 11.1 times trailing price-to-earnings (P/E) or about an 8 times forward P/E. With a nice 4.2% dividend yield and the means to benefit greatly from a stronger Canadian dollar, I do think the path of least resistance might be higher in 2026.
Indeed, a stronger Canadian dollar would help reduce input costs and add to the company’s margins, which also stand to benefit from ongoing operating efficiency efforts.
Fortis
Fortis (TSX:FTS) is another Canadian stock that wouldn’t mind a stronger loonie. Of course, the utility does business on both sides of the border. However, a stronger loonie would allow the firm a bit more purchasing power as it continues to embark on its capital expenditure plan. Not to mention a stronger loonie would make the U.S. dollar debt load seem even less hefty.
Either way, I view Fortis as a steady dividend payer that’s worth buying at 20.3 times trailing P/E with its 3.6% dividend yield. The latest quarter was incredibly good, and it might be just the start as the dividend grower looks to keep investing in its future growth.
