The USD/CAD exchange rate has surged to its highest level since March 2020 as the US dollar index soared, Canadian economy slowed, and crude oil prices slumped. It has soared in the last six consecutive weeks, its longest winning streak since August 2023. So, will the USD to CAD pair rise or fall ahead of Justin Trudeau’s resignation?

Justin Trudeau to resign this week

The Canadian dollar has been in a strong sell-off recently as the political situation in the country has worsened.

This crisis escalated in December when Chrystia Freeland wrote a scathing resignation letter to Justin Trudeau. Since then, speculation has been rife that Trudeau would resign as his popularity waned.

Now, there are reports that the prime minister will resign this week as he continue to lose the support from his Liberal Party colleagues.

His resignation comes at a time when Canada’s conservatives are seeing a strong resurgence, with their popularity rising to the highest level in years. 

If Trudeau resigns, then the Labor Party will need a new leader who will shepherd it in the next election. While this election is scheduled for October this year, there are chances that the country will have an early election.

Therefore, the USD/CAD has rallied partly because of the ongoing political instability the country. This instability is happening at a time when Canada’s trade relations with the United States are set to be high.

Donald Trump has accused the Canadian government of letting illegal migrants cross to the US. As a result, he has pledged to impose a 25% tariff, a deal that would undo the USMCA deal that he signed into law.

BoC and Fed divergence

The USD/CAD pair has also soared amid the ongoing divergence between the Federal Reserve and the Bank of Canada. 

In Canada, the BoC has embarked on a strong rate cutting cycle to boost the economy. It started slashing rates in June 2024 and has cut them five times since then. These cuts have moved the country’s interest rates from 5.25% to the current 3.25%. 

The BoC has hinted that this rate cutting cycle will continue as the economy slows. Recent data showed that Canada’s GDP grew by 0.3% in the third quarter and by 1% on an annualized basis. This growth was lower than the BoC’s guidance of 1.5%.

Canada’s inflation rate stands at 1.9%, slightly lower than the BoC’s target of 2.0%. The unemployment rate has remained stubbornly high at 6.8%.

The Fed, on the other hand, has maintained its highly hawkish view as inflation concerns in the US persists. This trend has drawn more people to the safety of the US dollar, as the DXY index has soared to $109.

Looking ahead, the USD/CAD pair will react to the upcoming US nonfarm payrolls data and Canada’s jobs numbers scheduled on Friday.

USD/CAD technical analysis

USD/CAD price chart | Source: TradingView

The weekly chart shows that the USD to CAD exchange rate has been in a strong rally in the past few years. It recently rose above the important resistance at 1.3970, the upper side of the ascending triangle pattern. 

The pair has remained above the 50-week and 100-week moving averages, while the MACD indicator has moved above the zero line. Other oscillators have continued rising this week.

Therefore, the USD/CAD pair will likely keep rising as bulls target the next key resistance point at 1.4665, the highest swing in 2020, which is near 2% above the current level. This forecast will become real if the pair crosses the key resistance at 1.4500.

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Canadian Prime Minister Justin Trudeau is expected to announce his resignation as Liberal Party Leader as early as Monday, according to a report from Canadian newspaper The Globe and Mail.

This follows mounting pressure from within his party, including a growing revolt among Liberal MPs and dismal public opinion polls.

The polls suggest that under Trudeau’s leadership, the Liberal Party is poised for a significant defeat in the upcoming election, with Conservative leader Pierre Poilievre’s party likely to secure a landslide victory.

The exact timing of Trudeau’s resignation remains uncertain, but sources cited by the newspaper indicated that he is expected to make the announcement before the Liberal Party’s national caucus meeting on Wednesday.

One source who recently spoke to the Canadian prime minister emphasised that Trudeau wants to ensure the announcement appears voluntary and not a result of being forced out by his own MPs.

Who will succeed Trudeau?

There is still uncertainty surrounding the process of replacing Trudeau as leader.

Sources suggested that it is unclear whether he will step down immediately or remain as Prime Minister until a new leader is selected.

The Liberal Party’s national executive is scheduled to meet this week to discuss leadership options.

Among the options are appointing an interim leader or holding a shortened leadership contest.

A leadership race, which would likely take at least three months, could be complicated by the need for Trudeau to request prorogation of Parliament.

If the leadership contest is delayed, it would create further uncertainty about who will lead the government.

Some MPs, including Alberta Liberal George Chahal, have expressed a preference for an interim leader, while others, including Finance Minister Dominic LeBlanc, have been considered for the role by the prime minister.

Trudeau’s troubled times

Trudeau’s leadership has been further undermined following the resignation of Deputy Prime Minister and Finance Minister Chrystia Freeland on December 16.

Freeland’s resignation, amid concerns over the government’s fiscal approach, added fuel to the fire of calls for Trudeau to step down.

The prime minister has largely remained out of the public eye since Freeland posted her sharp resignation letter.

Trudeau spent much of the holidays at a ski resort in western Canada and has not spoken with reporters since returning to Ottawa.

Many MPs, particularly from key regions such as the Atlantic, Ontario, and Quebec, have indicated that they no longer support his leadership.

Despite this, Trudeau’s advisers have been exploring options for him to remain as Prime Minister during the leadership race.

However, the support within his caucus has been waning, with growing reports of dissatisfaction and a belief that Trudeau’s tenure is nearing its end.

Liberal Party’s troubles

Recent polling has shown that the Conservatives, led by Pierre Poilievre, hold a significant advantage over the Liberals.

According to an Angus Reid survey, under Trudeau’s leadership, the Liberals are only supported by 13% of voters.

However, if Freeland were to take over as leader, the Liberals’ support would rise to 21%, the highest among the potential leadership contenders.

Other potential candidates for the Liberal leadership include Foreign Affairs Minister Mélanie Joly, Innovation Minister François-Philippe Champagne, Transport Minister Anita Anand, former central banker Mark Carney, and former B.C. Premier Christy Clark.

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Japan’s service sector activity expanded in December, driven by strong demand and continued business growth, according to the final au Jibun Bank Services PMI by S&P Global Market Intelligence.

The PMI rose to 50.9, up from 50.5 in November, marking the second consecutive month above the 50.0 threshold that separates expansion from contraction.

While the final figure was slightly below the preliminary reading of 51.4, the survey highlighted consistent increases in business activity and new orders, reflecting a positive trajectory for the sector.

The numbers were also softer than the 2024 average of 52.4.

Commenting on the latest survey results, Usamah Bhatti, Economist at S&P Global Market Intelligence, noted:

“December data highlighted a positive month for Japan’s service sector, with continued increases in both business activity and new orders. The latter saw its strongest growth in four months, driving a slight but quicker rise in overall activity.”

Bhatti added that growth in private sector output was bolstered by rising service sector activity and a milder decline in manufacturing output.

“While overall growth remained modest, new orders rose faster since August, and outstanding business, especially in manufacturing, supported output. Despite this, optimism about future output softened and fell below the 2024 average,” the economist noted.

The au Jibun Bank Japan Services PMI, compiled by S&P Global, is based on survey responses from approximately 400 service sector companies.

The surveyed sectors include consumer services (excluding retail), transport, information, communication, finance, insurance, real estate, and business services.

What led to Japan’s service activity growth?

The subindex for new business rose for the sixth consecutive month, hitting its highest level in four months.

Service sector firms reported a moderate increase in new orders, while manufacturers saw a slight decline in new work.

Average prices charged by private sector firms rose at the fastest rate since May as companies partially passed on higher costs to customers.

Input prices overall increased at a stronger and quicker pace than in November.

Workforce expansion continued for the 15th straight month, although the pace of hiring slowed compared to November.

Businesses indicated that recruitment aligned with expansion plans.

Inflation and Bank of Japan policy outlook

Inflationary pressures remained steady compared to the previous month, with both input price inflation and charge inflation staying well above their long-run averages.

While firms passed on the higher costs to clients, the rate of price increases remained stable from November.

The composite PMI, combining manufacturing and services, edged up to 50.5 in December from 50.1 in November, suggesting marginal overall economic expansion.

The persistent inflation in the service sector strengthens expectations for the Bank of Japan (BOJ) to consider a rate hike.

Governor Kazuo Ueda has signaled the need to monitor global economic conditions, including policies under US President-elect Donald Trump.

The BOJ’s next policy meeting is scheduled for January 23-24.

This steady service-sector performance adds weight to speculation about potential policy shifts at the upcoming BOJ meeting.

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Canada’s political landscape may be on the brink of upheaval as reports suggest Prime Minister Justin Trudeau is preparing to step down as the leader of the Liberal Party.

Amid waning approval ratings, internal party dissent, and mounting pressure from opposition leaders, Trudeau’s exit could significantly alter the Liberal Party’s future.

The prospect of his departure introduces a host of uncertainties for Canada, including the possibility of an interim leader navigating the nation through a precarious political period.

Trudeau’s leadership has been marked by both transformative policies and controversies, and his potential resignation underscores the challenges of balancing progressive ideals with political pragmatism in an increasingly polarised environment.

Liberal Party at historical low ahead of 2025 election

Justin Trudeau’s party has a mountain to climb ahead of the next election scheduled for later this year.

However, data suggest that a leadership change may help in providing some respite to the Liberal Party.

The latest Angus Reid poll reveals that the Liberals’ current voter support has hit rock bottom, falling below their 2011 performance under Michael Ignatieff when they garnered 18.9% of the vote.

The Liberal Party’s support among decided and leaning voters has now dropped to 16%, according to the Angus Reid Institute.

Source: Angus Reid Institute

Trudeau’s approval ratings have also plummeted to an all-time low of 22%, fuelling calls for a leadership change.

Source: Angus Reid Institute

The recent decline places the Liberals at a significant disadvantage, especially with 46% of Canadians and 59% of current Liberal supporters suggesting Trudeau should step aside.

Among the alternatives proposed, some advocate for a leadership contest, while others believe Trudeau should call a general election.

This turmoil was exacerbated by the sudden resignation of Chrystia Freeland, Deputy Prime Minister and Finance Minister, leaving a leadership vacuum in the government.

Freeland’s departure was particularly damaging as she was seen as a potential successor and a stabilising force within the administration.

Support for the Liberals has fallen by five points since Freeland’s unexpected departure from cabinet, with the largest decline among women aged 35 to 54, who have shifted toward the Conservatives.

Leadership vacuum looms as opposition parties gain ground

If Trudeau resigns, the immediate task for the Liberal Party will be selecting an interim leader to guide the government while preparing for a leadership convention.

Historically, such conventions in Canada take months to organise, leaving the party vulnerable in the event of an early election.

The Liberals face a critical decision: expedite the leadership process or risk alienating potential candidates who may feel disadvantaged by a shortened timeline.

The political uncertainty within the Liberal Party creates an opening for the opposition.

However, Conservative leader Pierre Poilievre has not capitalised on Trudeau’s declining popularity. His approval remains static at 38%, highlighting a gender gap with men favouring him significantly more than women.

While Poilievre’s focus on economic issues resonates with some voters, his polarising approach may limit broader appeal.

Potential leadership candidates for the Liberals are already being speculated.

Mark Carney, former governor of the Bank of Canada and Bank of England stands out for his financial expertise but lacks political experience.

Meanwhile, Dominic LeBlanc, a senior Liberal figure, offers experience but lacks Carney’s prominence.

The Liberals’ immediate challenge lies in addressing internal dissent and rebuilding public trust. With the next parliamentary session approaching, the party’s ability to unify under or without Trudeau will be pivotal.

If the leadership crisis persists, it could further erode their electoral prospects, paving the way for a more competitive political environment in Canada.

Trudeau’s legacy and the challenges ahead

Trudeau’s tenure has been defined by bold initiatives, including the legalisation of cannabis, the introduction of a carbon tax, and the negotiation of a new trade deal with the US and Mexico.

His government has also faced criticism over its handling of Indigenous issues, ethics scandals, and strained relations with global leaders. The Prime Minister’s political star, once ascendant, now faces the reality of diminishing public confidence.

The next leader of the Liberal Party will inherit these challenges, alongside navigating Canada’s economic recovery and addressing pressing issues such as healthcare reform and climate change.

Opposition leader Pierre Poilievre of the Conservative Party has capitalised on Trudeau’s declining popularity, positioning himself as a viable alternative.

Public opinion polls currently place the Conservatives 20 points ahead of the Liberals, signalling an uphill battle for the party to regain its footing.

A nation in political flux

Trudeau’s potential resignation comes at a critical juncture for Canada. Political analysts have pointed to increasing tensions within the Liberal Party, with some cabinet members reportedly urging Trudeau to step aside to revitalise the party’s image.

Meanwhile, the possibility of a no-confidence motion looms, which could force the Liberals into an election sooner than planned.

The resignation would also put Governor General Mary Simon in a pivotal role. While unlikely to intervene directly, Simon’s constitutional authority could shape the political transition, particularly if confidence in the Liberal government falters.

With Parliament scheduled to reconvene in late January, the window for Trudeau to make a decision is narrowing. Delaying the announcement or proroguing Parliament might buy time for the Liberals, but these tactics could exacerbate internal divisions and public discontent.

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