Canadian Dollar Forecast: PM Trudeau Resigns, USD/CAD Uptrend Intact

USD/CAD Key Takeaways

Canadian Prime Minister Justin Trudeau announced his resignation, triggering a leadership race in the Liberal party and likely early federal election.
The Conservative party, led by Pierre Poilievre, is on track for a large majority.
As long as USD/CAD holds above trend line support in the mid-1.4200s, the trend remains higher, especially with an inevitable period of political uncertainty weighing on the Loonie

Canadian PM Justin Trudeau Resigns

So much for a quiet start to the new year!

Canadian Prime Minister Justin Trudeau has just announced his resignation after nearly a decade in power, throwing the country into a period of political uncertainty. Once celebrated as a transformative leader, Trudeau’s popularity plummeted due to economic challenges, a housing affordability crisis, and internal party dissent. In retrospect, the high-profile resignation of his Deputy Prime Minister and Finance Minister Chrystia Freeland last month hammered the proverbial nail into Trudeau’s political career coffin.

What’s Next for Canada After Trudeau’s Resignation?

Trudeau’s exit will trigger a leadership race in the Liberal Party, which currently holds a minority government. The New Democratic Party (NDP), a crucial ally, has withdrawn support, increasing the likelihood of a no-confidence vote and an early federal election. Polls show the opposition Conservatives, led by Pierre Poilievre, with a commanding 25-point lead, positioning them as favorites to form the next government.

Source: Bloomberg, Nanos Research

Market Impact of Trudeau’s Resignation

Markets saw a limited reaction to the news of Trudeau’s resignation, though the Canadian dollar has risen substantially against the US dollar on the day, primarily on hopes of a more limited tariff policy from the incoming Trump Administration.

For traders, Canada’s political transition raises critical questions. A Conservative victory could mean significant policy shifts, including potential changes to carbon taxes and trade strategies, not to mention establishing a new relationship with the incoming US President. Meanwhile, industries reliant on US trade are bracing for potential disruptions.

Canadian Dollar Technical Analysis – USD/CAD Daily Chart

Source: TradingView, StoneX.

As the chart above shows, USD/CAD has traded consistently higher since bottoming near 1.3400 in late September. As it often does, the pair has followed the US-CA 2yr yield spread closely over that period, and with that spread now testing its highest level in nearly three decades, even today’s sharp drop in USD/CAD may be relatively short-lived.

As long as the pair holds above trend line support in the mid-1.4200s, buyers will still maintain the upper hand, especially with an inevitable period of political uncertainty weighing on the Loonie; readers accordingly shouldn’t be surprised if USD/CAD makes a run at the 1.45 level or even the 9-year highs above 1.46 later this month. Only a break below the 23.6% Fibonacci retracement near 1.4220 would call the near-term bullish bias into question.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

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