USD/CAD: Early elections are likely in Canada – Commerzbank

Yesterday afternoon, European time, Canadian Prime Minister Justin Trudeau officially announced that he was stepping down as leader of the Liberal Party and that he would resign as Prime Minister once a successor had been found. The move did not come as a complete surprise. Trudeau had become too unpopular, and after Finance Minister Chrystia Freeland tendered her resignation in December public pressure mounted. Trudeau was also highly controversial within the Liberal Party, given his poor re-election prospects, Commerzbank’s FX analyst Michael Pfister notes.

CAD to appreciate in the coming months

“The CAD made some gains against the USD after reports surfaced on Monday morning (GMT) that Canadian Prime Minister Justin Trudeau was close to resigning. Apparently, the Conservative Party, which is currently leading in the polls, is seen as more capable of solving Canada's problems, such as low per capita growth and increased immigration. However, we remain somewhat sceptical as to whether the CAD's strength will be sustained.”

“First of all, the situation in Canada is now characterised by increased uncertainty, even if the polls seem to indicate a foregone conclusion. After all, a lot can happen in an election campaign, especially at a time when Donald Trump is exerting considerable pressure on his northern neighbour. While we also expect the CAD to appreciate in the coming months, we would be cautious about reading too much into yesterday's events.”

“Canada and Germany are now in, or about to enter, election campaigns, France is in an uncertain situation with new elections possible in the summer, and the situation in Japan also does not currently look conducive to a stable government. So more than half of the G7 countries are not really in a position to undertake forward-looking reforms at the moment – which is not a good sign.”