April 2025 has seen the loonie punch above its weight, strengthening to $US0.72 even as Canada plunged into a fiercely contested election. Markets braced for volatility as polls tightened. The Liberal Party, led by former Bank of England chief Mark Carney, was projected to eke out a win — but without the majority needed for stable governance. The prospect of a fragmented parliament rattled investors, with strategists warning that political paralysis could derail fiscal stimulus efforts at a critical juncture.
“The risk of gridlock is wildly underpriced,” cautioned analysts, highlighting the growing possibility of unstable coalitions and stalled legislation.
When the dust settled, the outcome was as messy as feared: Carney’s Liberals clung to power without securing a majority. The loonie edged lower, slipping 0.2% to 1.3856 against the U.S. dollar amid thin trading — but undercurrents of unease ran deep. Analysts warned that Canada's ability to mount a fiscal response to rising recession risks could be crippled, just as negotiations with U.S. President Donald Trump over tariffs threatened to escalate.
Both Carney and his Conservative rival Pierre Poilievre had staked their campaigns on jump-starting growth. Carney vowed to scrap unpopular capital gains tax hikes and fast-track an ambitious internal free trade deal by July. Energy independence also dominated the agenda, with promises to accelerate projects that would sever Canada's reliance on volatile U.S. oil markets.
Even amid political gridlock and a downgraded IMF growth forecast, investors clung to one bright spot: global trade tensions were easing. U.S. Treasury Secretary Scott Bessent’s assertion that tariff disputes were “unsustainable” sparked a rally, lifting the loonie 0.2% to 1.3816 per USD — the best performance among G10 currencies. Surging oil prices, up nearly 2% to $64.31 a barrel, gave the CAD an additional tailwind.
Looking ahead, the Canadian dollar is expected to strengthen against the U.S. dollar in 2025, driven by reduced borrowing costs stimulating economic growth and attracting investors to take on more risk. The Bank of Canada has cut its benchmark interest rate by 75 basis points since June, with further cuts anticipated. Analysts forecast the loonie to appreciate by 2% to 1.3275 per USD within a year.
In a world spinning toward volatility, the loonie’s resilience has been remarkable — but as Canada’s political fault lines deepen and global risks multiply, 2025 is shaping up to be a year where nothing, and no one, is truly safe.
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News2025-03-19
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