USD/CAD analysis ahead of potential Justin Trudeau resignation

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.