Synopsis:
BofA sees USD/CAD staying muted ahead of Canada’s federal election, despite concerns over tariff negotiations and potential political uncertainty. Historical trends show the pair tends to modestly rally post-election, but this movement is largely tied to broader USD trends (88% correlation). For 2025, USD/CAD is expected to decline to 1.40, driven by a weaker USD and fading tariff impact on CAD.
Key Points:
1️⃣ Canadian Election Unlikely to Disrupt USD/CAD 📊
- New Liberal leader Mark Carney may call for an early election.
- Historically, USD/CAD has remained stable before elections.
- Post-election rallies have mostly followed broader USD movements.
2️⃣ Tariffs More Critical Than Political Shifts 🌍
- US-Canada tariff negotiations remain a key CAD driver in 2025.
- Election uncertainty is less influential than broader macroeconomic trends.
3️⃣ USD/CAD to Decline to 1.40 in 2025 💵
- Driven by a weaker USD as global macro trends shift.
- North American tariffs expected to become less CAD-negative over time.
Conclusion:
BofA expects limited FX volatility around Canada’s election, with USD/CAD more influenced by macro factors and tariff negotiations. Over the year, a weaker USD and diminishing tariff impact should push USD/CAD lower to 1.40.
