07:52 AM EST, 12/23/2024 (MT Newswires) -- The Canadian dollar (CAD or loonie) closed below US$0.70 last Tuesday for the first time since March 2020 and

the days following the declaration of the pandemic, said Bank of Montreal (BMO) in a note published Thursday.

This time, the currency could average below that mark, which it didn't do in 2020, noted the bank. It's currently on track for US$0.702 (C$1.424) assuming no further changes.

This already sneaks past the monthly low recorded in January 2016, when oil prices were plummeting.

Two factors are driving this two-decade-extreme bout of loonie weakness, apart from the latest flare-up of domestic political uncertainty, according to BMO.

First, there's the Bank of Canada's more aggressive easing tack than the United States Federal Reserve's. Although both central banks are now following a more cautious course, with BoC policy rates much closer to neutral, once the Fed resumes rate cuts in March wBMO suspects this loonie-negative factor will have already started to fade.

Second, the risk of US tariffs, generally, and ones on Canada, specifically, have increased. On Nov. 25,

US President-elect Trump posted that, once in office, he would immediately apply a 25% tariff on all imports from Canada and Mexico and another 10% on those from China until the countries took action to address the flow of illegal

migrants and drugs into the US from their jurisdictions.

Interestingly, Canada recently announced plans to do just

that, potentially paring these specific risks. However, the general threat of tariffs -- Trump's modus operandi -- and

uncertainty surrounding the mid-2026 revisiting of the USMCA look to be more perennial factors negatively affecting the loonie, added the bank.

On balance, BMO sees the Canadian dollar remaining weak through next March, eventually averaging a bit below US$0.70 -- hitting C$1.43 -- before rebounding to almost US$0.72, or C$1.39) by the end of next year. However, the net risks lie on the side of a weaker loonie.