Canadian media outlets are projecting a victory for the Liberal party in the general election, with Mark Carney confirmed as the next Prime Minister. However, the election outcome reveals a much tighter race than pre-election polls suggested. Current projections indicate the Liberals securing 167 parliamentary seats, falling short of the 172 needed for a majority. This outcome suggests that, similar to the previous legislative session, the Liberals will likely need to form a coalition government with the New Democratic Party, which is projected to win 7 seats, according to Francesco Pesole, FX analyst at ING. This coalition-building exercise will be crucial for the stability and direction of Canadian policy in the coming years. The markets are now closely watching how these political dynamics will unfold and influence economic policy.
USD/CAD Holds Below 1.390, Primarily Influenced by US Developments
“As anticipated, the Canadian dollar has reacted negatively to the news of a minority Liberal win, as market participants had largely priced in a majority government as the most probable scenario. A narrow lead in Parliament is generally unfavorable for a country’s currency, yet the losses experienced by the CAD have been relatively contained. USD/CAD is maintaining its position below the 1.390 level and continues to be primarily influenced by events in the United States and the strength of the USD,” Pesole added. The relative stability of the USD/CAD pair suggests that broader global economic factors and monetary policy decisions in the US are currently outweighing the domestic political uncertainty in Canada.
“Looking at the longer-term implications, Prime Minister Carney has committed to aggressively challenging US President Donald Trump on the issue of tariffs. His established relationships with European nations could also present challenges during future trade negotiations. Ultimately, the critical task remains the timely renegotiation of the USMCA (United States-Mexico-Canada Agreement). The Conservative party had previously indicated a more explicit intention to prioritize this renegotiation. While Carney intends to address the trade relationship with the US, his approach may be more deliberate, with the stated goal of ending the existing US-Canada tariff disputes through negotiation.” Investors will be keenly observing the new government’s approach to trade and international relations, as these factors will significantly impact Canada’s economic outlook and its relationship with key trading partners. The pace and success of USMCA renegotiations will be a key indicator of the government’s ability to navigate the complex global trade landscape.
