The loonie is in focus on potential Trudeau resignation

The latest political developments are certainly adding a lot of intrigue to the USD/CAD chart to start the new year. The pair came close to cracking 1.4500 but is ultimately pulling back now. Does that line up with the potential for a technical pullback as we have seen back in 2016 and 2020 before?

The pair even extended above 1.4600 during those two times previously, so one can also draw the line in the sand to be anywhere between 1.4500 to 1.4660 or thereabouts. But perhaps the 1.4500 mark offers more of a psychological barrier, as traders do love their big round figures.

In any case, the loonie is up this week with USD/CAD down by 0.4% today to 1.4390. It comes as Trudeau looks poised to resign from his post as prime minister. Some backdrop on that:

• Trudeau expected to resign ‘by Monday’ – report
• Canada PM Trudeau expected to announce resignation before national caucus meeting Wednesday

Trudeau’s Liberal Party has been struggling for public support and it appears that we’ve finally got the straw that breaks the camel’s back. As he resigns, the Liberal Party is likely to stay in leadership as they seek an interim successor.

However, any leader that stays in charge will require a vote of confidence from parliament lawmakers. If not, a general election will be called. And whichever way, that looks to be where we’re headed as it will have to happen before October this year.

As things stand, Pierre Poilievre’s Conservative Party looks odds on to take over and govern in Canada. And there are certain quarters in the market that believe he is more pragmatic when it comes to drawing lines on the economic and trade front as opposed to Trudeau.

The fact that Trump is also elected as US president is an issue for Trudeau, as he doesn’t have the best of ties with the tariff man. And that could set Canada on the crosshairs of a more challenging economic landscape this year.

But if Poilievre, while quite outspoken himself, is able to strike a better rapport with Trump then that would be seen as a positive for the loonie perhaps. I mean, the line of thinking in markets is that can the outlook get any worse than it is now under Trudeau?

Trudeau has been avoiding any real confrontation with the US on trade, while insisting to protect Canada’s economic interest in the whole NAFTA/USMCA proposition. Then, there’s the case of him aligning more with the likes of Mexico and the EU is sniping at Trump on tariffs.

So, while Poilievre might have a more populist approach as well, he might just be one to lean more in securing Canada’s own economic interest rather than be focusing on aligning himself with other trade allies. And that might benefit the economy if he is able to get on Trump’s good side.

That said, there’s also the off chance that Poilievre takes a hard stance against Trump and fights back. But for now, traders are taking things in piecemeal I guess.

At the end of the day, it will be a case of having to wait and see what happens. The first step in all of this of course requires Trudeau to resign, so we’ll have to wait for that first and foremost.

This article was written by Justin Low at www.forexlive.com.