The Canadian dollar, our friendly loonie, has been doing some ups and downs in 2025. For Canadian investors, especially those using Tax-Free Savings Accounts (TFSAs), these changes in currency can really affect how investments do. Keeping an eye on where the loonie is heading is important. This is especially true if you’re thinking about investing in companies like the Canadian Imperial Bank of Commerce (TSX:CM). Its fortunes are tied to how our dollar moves. So let’s look at how.
What happened
So far in April 2025, the Canadian dollar has seen some noticeable swings. Most recently, it reached 1.38 loonies for one U.S. dollar. This little boost happened after the Bank of Canada decided to hold off on cutting interest rates any further, keeping the main rate at 2.75%. The pause came after they had lowered rates seven times in a row. It shows the central bank is being careful because the economy is uncertain and prices for many items remain high. It’s a balancing act.
But just the day before that, the loonie had actually fallen back from its highest point in five months, dropping by 0.7% to 1.40 per U.S. dollar. This dip happened because the U.S. dollar got stronger, and also because the inflation numbers in Canada weren’t as high as expected. The yearly inflation rate dropped to 2.3% in March from 2.6% in February. This was mostly because gas prices and travel costs went down. So, the loonie can change its mind quickly!
These ups and downs show that the loonie reacts to what’s happening in our own economy and also to things happening around the world. For TFSA investors, these changes can have a real impact on their money. If the Canadian dollar gets stronger, the value of your investments in other countries can go down when you change that money back into Canadian dollars. On the other hand, if the loonie gets weaker, your returns from those foreign investments can look better. So, currency movements are definitely something to keep in mind when you’re managing your investments. It’s part of the game.
How your investments are affected
CIBC is a good example of a Canadian company that can be affected by these currency changes. In its report for the first three months of 2025, CIBC said its revenues were $7.3 billion, which is a nice 17% increase from the year before. Its adjusted earnings per share (EPS) even hit a record high of $2.20, up 22% year-over-year. The bank’s capital markets division, which often deals with money going between countries, actually benefited from these currency movements. So, sometimes it works in their favour.
What’s interesting is that CIBC’s U.S. Commercial Banking and Wealth Management businesses reported net income of $256 million for the first quarter. That’s a big jump of $264 million from the same time last year. This growth happened mainly because it didn’t have to set aside as much money for potential loan losses, revenue was higher, and expenses were lower.
For TFSA investors, uncertainty about where the loonie will go next means it’s important to have a mix of different investments and manage currency risk. Investing in companies like CIBC, which have significant business in both Canada and the U.S., can help provide some protection against currency swings. Also, thinking about the currency exposure of your international investments and maybe using currency risk management tools like currency-hedged funds can help reduce potential negative effects. It’s about being prepared.
Bottom line
So, in the end, how the Canadian dollar performs in 2025 is a big event for TFSA investors to keep an eye on. Currency movements can really change the returns you get from both Canadian and international investments. By staying informed about what’s happening with the economy, what the central banks are doing, and what’s going on globally, investors can make smart choices to keep their portfolios healthy even when the loonie is doing its dance. It pays to be informed.