What is the Loonie?

Loonie is a colloquial term for the Canadian dollar (CAD), the official currency of Canada, that originated in the forex dealer community and has subsequently gained popularity with foreign exchange (FX) traders.

Key Takeaways

  • Loonie is a colloquial term for the Canadian dollar (CAD), the official currency of Canada, that originated in the forex dealer community and has subsequently gained popularity with foreign exchange (FX) traders.
  • The loonie refers to the $1 Canadian coin and derives its nickname from the picture of a solitary loon on the reverse side of the coin.
  • The loonie, introduced in 1987, was a replacement for the paper version of the Canadian dollar (CAD) and became such a popular nickname that the Royal Canadian Mint trademarked it in 2006.

Understanding the Loonie

The loonie refers to the $1 Canadian coin and derives its nickname from the picture of a solitary loon on the reverse side of the coin. The obverse side of the coin features a portrait of Queen Elizabeth II. The loonie became such a popular nickname for the Canadian dollar that the Royal Canadian Mint trademarked the name in 2006.

The loonie, introduced in 1987, was a replacement for the paper version of the Canadian dollar (CAD). This replacement was done both as a cost-saving measure and under pressure from vending machine operators and transit groups. Noted wildlife artist Robert-Ralph Carmichael designed the 11-sided, aureate bronze coin.

The widespread acceptance of the $1 loonie led to the introduction of the $2 coin in Sept. 1995. Although the $2 coin features a picture of a polar bear, by artist Brent Townsend, Canadians quickly began calling the coin the "toonie," a portmanteau of the words two and loonie. The Royal Canadian Mint also trademarked the term "toonie" in 2006.

The Royal Canadian Mint, located in Winnipeg, Manitoba, mints Canadian dollars. The Bank of Canada (BOC), located in Ottawa, Ontario, acts as the nation's central bank and manages the currency.

The Loonie in the Global Economy

The Canadian dollar is among the top-10 most widely traded currencies in the foreign exchange markets. Thanks to Canada's burgeoning exports of energy and commodities, the loonie was among the best-performing currencies against the U.S. dollar (USD) in the first decade of the new millennium.

The loonie fell sharply in value against the dollar in the wake of the 2008 financial crisis, as investors sought the safety of American assets. It has since rallied, buoyed by the rebound in the price of oil and other commodities. This increase was mainly due to the strength of the Chinese government's infrastructure-focused stimulus efforts, which saw increased demand for Canada's natural resources. Demand from Chinese firms for raw materials and oil, both of which Canada exports in abundance, propped up the Canadian economy and the value of the Canadian dollar.

The softening of the international oil markets beginning in 2014 hurt the value of the loonie. From a peak of 1.05 CAD to 1 USD, the loonie fell to a value of fewer than 70 cents per U.S. dollar in early 2016. Since that time, the loonie has recovered somewhat as it moves in lockstep with the price of oil and other commodities.