Following President Trump’s decisive victory, the USD/CAD currency pair experienced a sharp spike, with the U.S. dollar reaching multi-year highs against the Canadian dollar. This surge was driven by market optimism regarding anticipated fiscal stimulus measures, including proposed corporate and personal tax cuts. However, in the two days following the election, approximately half of these gains were relinquished as investors reassessed the practical implications of such policies. The initial euphoria in risk assets observed on Wednesday and Thursday moderated, allowing the Canadian dollar to stabilize.
Initially, the prospect of another term under President Trump was seen as a positive for the U.S. dollar. The administration’s commitment to fiscal stimulus through tax reductions is expected to constrain the Federal Reserve’s capacity to implement further interest rate cuts in the near future. Conversely, the Bank of Canada appears inclined to continue its accommodative monetary policy, potentially widening the yield spread in favor of the U.S. dollar. This divergence in monetary policy stances could exert downward pressure on the Canadian dollar relative to its U.S. counterpart.
However, the combination of the Federal Reserve cutting interest rates and markets having second thoughts about the practical impact of tariffs on the Canadian economy has helped stabilize a weakening Canadian dollar. The initial depreciation of the CAD, prompted by concerns over trade policies, has been mitigated as markets adopt a more cautious outlook.
The release of Canada’s employment figures on Thursday presented a mixed picture, with data not providing a definitive direction for the currency markets. While the number of expected jobs added was 14K, lower than the anticipated 25K, most of the jobs shed were part-time positions. As a result, these employment statistics had a negligible effect on the Canadian dollar’s valuation, with investors focusing more on broader economic indicators and policy developments.
While the dust has not yet completely settled on the impact of the Trump win on financial markets, particularly currency markets, one thing is clear: the 1.39 to 1.40 range has been very difficult to surpass. It will likely take something even more significant than the current developments to break through this resistance level.
The Canadian dollar is currently trading at 1.3917 CAD against the US Dollar.
