Forex
Canadian dollar seen strengthening as Trudeau faces growing calls to step down
Investing.com — Canadian Prime Minister Justin Trudeau is facing growing calls from his party members to step down. This development comes ahead of a scheduled party meeting set to occur this week. Trudeau is expected to deliver a statement in Ottawa, the country’s capital, at 10:45 a.m. local time on Monday.
Trudeau, who has been in power for nearly ten years, reportedly spent the holiday break contemplating his future. Some local reports suggest he may consider resigning before the party caucus gathers on Wednesday. However, Trudeau’s spokespeople have not yet responded to requests for comments.
If Trudeau resigns, he would leave as one of Canada’s most unpopular political figures, potentially leaving his party in a weakened state and the country facing an uncertain economic future. This uncertainty is compounded by incoming U.S. President Donald Trump’s promise to impose a 25% tariff on Canadian imports.
The prime minister’s political standing has been shaky, especially in the wake of a voter backlash against progressive politics, economic decline, dissatisfaction with aggressive climate policies, and growing resistance to immigration. Trudeau’s hold on power was further destabilized last month when the New Democratic Party, which had been supporting his minority government, announced its withdrawal of support.
This announcement came shortly after the resignation of Finance Minister Chrystia Freeland, who stepped down due to disagreements with Trudeau’s spending proposals. Freeland, who also served as deputy prime minister, left the cabinet because she believed Trudeau was not taking adequate measures to prepare for a potential trade war with Washington.
Calls for Trudeau’s resignation have grown louder within his party as the Liberal Party’s poll numbers have fallen. The public blames Trudeau for rising costs and housing shortages, which have been exacerbated by more lenient immigration policies.
Public opinion polls conducted in late 2024 and early this year show Trudeau’s approval rating has dropped to around 20%, and the Liberal Party is trailing the Conservatives by more than 20 percentage points.
“With Trudeau’s pending resignation, it looks like a Conservative-led government is closer to being on the way in Canada, and we can now say with greater than 50% certitude that the Conservatives or a Conservative-led coalition will govern Canada in 2025,” Thierry Wizman, Global FX & Rates Strategist at Macquarie, said.
“That realization should help the CAD stand up; the might very well have already made a top — i.e., sooner than it otherwise would have — on a better structural growth outlook for Canada postelection.”
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar has gained strongly since the US presidential election in November, but these gains are unlikely to limit the hit that US customers are likely to face from tariffs, according to UBS.
At 08:25 ET (13:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 108.950, but was around 1.5% higher over the last month, and remained not far from the more than two-year high seen last week.
The theory is that a stronger dollar lowers US import prices, said analysts at UBS, in a note dated Jan. 17. Those lower prices would partially offset the tax payments US consumers must make to the US Treasury when buying imports.
If the US paid for the Chinese imports, then a stronger dollar would automatically reduce the amount of dollars paid (fewer dollars are exchanged to pay the renminbi price). However, the US pays for practically all its imports in dollars, so this does not happen.
If the dollar strengthens, the dollar price is unchanged, unless the exporter consciously chooses to lower the dollar price of the goods sold, UBS added.
An exporter to the US might deliberately lower dollar prices, as (in dollar terms) local currency costs are lower. But local currency costs are only a fraction of a manufacturer’s costs.
“A Chinese electronics manufacturer, importing chips (bought in dollars) and exporting computers to the US (in dollars), will probably keep their dollar prices stable—ignoring currency moves,” UBS added.
The US dollar strengthened against China’s renminbi in 2016 and 2018/19, and US import price inflation for products from China showed no noticeable break with earlier trends.
The preference seems to have been to reroute supply chains as a way of avoiding trade taxes.
Investing.com – The US dollar slumped Monday following a report that indicated that President-elect Donald Trump was set to delay imposing trade tariffs immediately upon his inauguration, an expectation which had boosted the US currency following his November election victory.
At 09:20 ET (14:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1.1% lower to 108.020, having climbed to a more than two-year high last week.
The Wall Street Journal reported Monday that Trump is planning to issue a broad memorandum on his inauguration that directs federal agencies to study trade policies and evaluate US trade relationships with China and America’s continental neighbors—but stops short of imposing new tariffs on his first day in office.
The memo, which the WSJ has seen, suggests that debates are still ongoing within the incoming administration over how to deliver on Trump’s campaign trail promises for hefty tariffs on imports from trade rivals such as China.
The dollar has gained around 4% since the November presidential election as traders anticipated Trump’s policies will be inflationary, necessitating higher interest rates for a longer period.
“Financial markets are on tenterhooks to see what executive orders newly elected US President Donald Trump will enact on his first day,” said analysts at ING, in a note.
“FX markets are most interested in what he has to say about tariffs and what kind of pain the Oval Office plans to inflict on major trade partners.”
Bank of America (BofA) noted a significant increase in repo rates during the week of January 13 due to heightened liquidity demand triggered by tax payments and limited funding provided by the People’s Bank of China (PBoC).
The liquidity squeeze was most noticeable on January 16, the day following the tax payment deadline, with DR007 and R007 reaching 2.34% and 4.19%, respectively.
The PBoC maintained its stance on defending the exchange rate stability, resulting in the tightness of (RMB) liquidity being felt in the offshore market as well.
On January 9, the central bank announced it would issue RMB60 billion of 6-month bills in Hong Kong, a significant increase compared to previous issuances. The coupon rate of 3.4% was notably higher than the December issuance, reflecting the tightness of CNH liquidity and subdued demand from investors.
The December FX settlement balance by banks’ clients fell further to a deficit of US$10.5 billion, the first deficit reading since July 2024. A key change from the previous month was a sharp increase in USD demand for service trade. Reports also suggest that domestic importers have been actively purchasing USD via FX forward to hedge against tariffs risk in recent weeks, which has been exerting upward pressure on forward points.
On January 13, the PBoC increased the cross-border macroprudential parameter to 1.75 from 1.50. This move allows domestic corporations and Financial Institutions (FIs) to conduct more cross-border borrowing.
Given the widened interest rate gap between China and overseas, BofA believes this is more of a symbolic move by the PBoC to anchor market’s expectation on FX.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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