Donald Trump is celebrating the likely departure of a nemesis from north of the border. This week, Canadian Prime Minister Justin Trudeau is facing calls from within his own party to step down after the sudden resignation of finance minister Chrystia Freeland. The crisis is also adding to the pressure on the country's struggling currency.
Also known as the Loonie, the Canadian dollar traded above the threshold of 1.43 per U.S. dollar, or 0.70 U.S. cents per Canadian dollar, on Tuesday, its weakest intraday level since the start of the pandemic in March 2020.
The Loonie is unlikely to recover as Canada remains in a leadership crisis as opposition parties and even members of Trudeau's own Liberal Party are calling for a vote of no-confidence in his government. The prime minister’s approval rating has hit a new low of 28%, with his party trailing its main conservative opposition badly in the polls ahead of an election that must be held by October 2025.
Adam Button, chief currency analyst at ForexLive, told Reuters on Monday that it appeared markets had largely priced in the political crisis.
“In many places in the world, the resignation of the finance minister would be a crushing blow to the currency but the market appears to have fully discounted a period of political uncertainty, and inevitable change in government,” he said.
Trump tariffs weigh on the Loonie
In announcing her resignation, Freeland delivered a stinging public rebuke to what she described as Trudeau's proposed financial "gimmicks" at a time when Canada should be "pushing back against 'America First' economic nationalism with a determined effort to fight for capital and investment and the jobs they bring"—a clear allusion to Trump's tariff proposals.
Trump has floated 25% tariffs on Canada and Mexico unless both countries take additional measures to stem the flow of migrants and drugs into the U.S. That would be a massive blow to the Canadian economy, which sends 75% of its exports to the U.S., according to the Bank of Canada.
In response, Trudeau met with the President-elect in Mar-A-Lago, where Trump joked about Canada becoming the 51st state. Meanwhile, Trudeau has announced a two-month sales tax holiday and a 250 Canadian dollar ($175) tax-free rebate for workers making less than the equivalent of $105,000—the "gimmicks" that put him at odds with Freeland.
She won’t back Trudeau’s government in a fight this time around, however, as tariff threats and monetary conditions put downward pressure on the Canadian dollar.
In her resignation letter on Monday, Freeland said Trudeau informed her on Friday that he no longer wanted her to serve as finance minister. He reportedly then offered her a lesser position.
Canada’s economy has already showed vulnerability coming out of a period of inflation, causing the country’s central bank to cut interest rates much faster than the Federal Reserve. That gap favors investment in the U.S., which has driven the Loonie lower relative to the U.S. dollar.
That will put upward pressure on inflation and hurt productivity growth, Lawrence Schembri, the former deputy governor of the Bank of Canada, and fellow economist Steven Globerman wrote in an opinion piece for the Financial Post, the country's biggest business news site. A weaker currency also makes Canadian goods relatively cheaper in the U.S., though, which could partially offset the effects of tariffs.
On the campaign trail, Trump indicated he wanted a weaker U.S. dollar to boost the competitiveness of American exports. For now, however, it seems he’s set on putting his protectionist agenda first.
