Political uncertainty could bring about opportunities for the Canadian dollar, according to one strategist, who thinks early elections next year could potentially be a tailwind for the loonie.
The Canadian dollar was trading below 70 cents U.S. late Wednesday morning. On Tuesday Bloomberg News reported the loonie declined to its lowest value since March 2020 amid turmoil in Prime Minister Justin Trudeau’s government. It fell by another 0.5 per cent on Tuesday, beyond 1.43 per U.S. dollar. Additionally, declines in Canada’s currency have taken place alongside a lagging economy and tariff threats from U.S. President-elect Donald Trump.
“Well, if you had a conservative led government in Canada, I think it would help the loonie regardless of the timing of that election, as long as that conservative-led government put in policies that were pro-growth, pro-market, eventually I think the loonie would recover,” Thierry Wizman, a global FX and rates strategist at Macquarie, said in an interview with BNN Bloomberg Wednesday.
He added that an earlier election in April or May, would provide a “more friendly” backdrop for negotiations between the U.S. and Canada on trade relations and border security.
“The earlier that those negotiations start and the presumption that they start between two friendly as opposed to two lukewarm governments would be a good thing,” Wizman said.
“I think that President Trump here would look favourably upon a conservative led government in Canada, and especially one that shared his ideology with respect to a lot of social and economic issues, in both countries.”
In contrast, he said that a delayed election some time next fall would be “negative for the market” as markets tend to favour the resolution of “outstanding issues.”
“So, this is about a resolution coming earlier rather than later if we were to get a change of government in Canada,” Wizman said.
Following Chrystia Freeland’s surprise resignation as the finance minister on Monday, he noted the U.S. dollar was “bid up quite aggressively.”
“I think that the traders and investors do not like to look at a sustained period of uncertainty, especially in politics,” Wizman said.