News of Prime Minister Justin Trudeau’s impending resignation sent the Canadian dollar higher on Monday morning in a move some experts say reflects higher confidence in Canada’s economy with new leadership on the way.
The loonie, which had been struggling for months heading into the new year, briefly surged by roughly one per cent in early trading Monday compared to the U.S. dollar as reports of Trudeau’s exit spread. The Canadian dollar briefly notched back above 70 cents US before receding somewhat to roughly 69.7 cents by 2:30 p.m. Eastern.
The Canadian dollar is coming off a rough end to 2024, when signals of a widening policy rate differential between the Bank of Canada and the U.S. Federal Reserve hurt the loonie compared to its American counterpart.
Trade threats from U.S. president-elect Donald Trump have also hammered the loonie since his re-election in November. On the domestic front, Chrystia Freeland’s resignation from Trudeau’s cabinet on the day she was to table the government’s fall economic statement in late December caused the loonie to stumble as well.
After trading around 74.8 cents US at the start of 2024, the loonie ended the year roughly five cents lower.
Investment adviser Allan Small of iA Private Wealth tells Global News that while there are many factors that can shift the loonie on a given day, in the long run, the Canadian dollar exchange rate compared to the U.S. greenback is “absolutely” a reflection of confidence in Canada’s economy.
Monday’s movements reflect how investors think about Trudeau’s tenure as prime minister and how he has shepherded the economy over the past few years, he argues.
“The loonie actually went higher, which tells me that investors in general and foreign investors believe this is a good move, that our dollar versus the U.S. dollar was depressed or down because of leadership, because of the way the country was being run,” Small explains.
Get weekly money news
Get expert insights, Q&A on markets, housing, inflation, and personal finance information delivered to you every Saturday.
Small says that, in the eyes of the market, Trudeau wears the recent slowdown in the Canadian economy: while Canada has avoided an outright recession, on a per capita basis, the country’s output has declined in six consecutive quarters. Perceived missteps in Liberal policy have led the country to its current moment, suffering from affordability challenges and sluggish growth, he says.
Small adds that there are “two sides” to the coin when it comes to a weaker loonie, and the relative strength of the U.S. economy and expectations for a pro-growth agenda from Trump are causing investors to flood money south of the border, driving up the American greenback.
What does Trudeau’s resignation mean for Canada’s economy?
While the initial reaction in currency markets was positive, RSM Canada economist Tu Nguyen warned in a note to Global News that Trudeau’s resignation could lead to more uncertainty in Canada’s economy.
“For nearly a decade, Canada’s political stability helped attract foreign investments,” Nguyen wrote. “Trudeau’s resignation adds to the uncertainty in Canada’s economic environment, which could temporarily deter investments from flowing into Canada.”
Trudeau will remain prime minister until the Liberals decide on a new leader, and he has also prorogued Parliament, meaning the House of Commons will not sit until at least March 24. All parliamentary business that hasn’t already received royal assent dies, and will need to be re-introduced from the beginning.
That comes mere weeks before Trump is set to take office in his second term. The president-elect has promised to impose blanket tariffs on Canadian imports to the U.S., a move that economists have warned would cause severe damage to economies on both sides of the border.
Trudeau’s resignation landing in the midst of renewed trade negotiations with the Trump administration could weaken Canada’s bargaining position, add to political uncertainty and push businesses to press pause on investment plans until the path forward is more clear, Nguyen said.
More stable inflation and lower interest rates from the Bank of Canada had fuelled calls for an economic rebound in the later half of 2025, but Nguyen warned that a “wait-and-see approach” from businesses could delay the recovery.
Candace Laing, president and CEO of the Canadian Chamber of Commerce, thanked Trudeau for his service in a statement Monday, but said the prime minister made the “right call” by bowing out.
“His resignation marks a turning point as Canada tackles unprecedented domestic and international challenges. Canada can’t afford inaction with so much at stake,” Laing said. She called for unity among political and business leaders and said the next prime minister must be “laser-focused” on the Canada-U.S. trade relationship.
Nguyen added that, based on current polling, a federal election in Canada this year would likely yield a Conservative victory under that party’s leader, Pierre Poilievre. A Conservative government might favour tax cuts and deregulation in a similar tact to the second Trump regime, Nguyen said, which could bode well for trade policy negotiations between the nations.
Kyle Ballinger, a foreign exchange analyst with Ballinger Group, also said in a statement shared with Global News that moves suggesting a change in government is looming for Canada bode well for the loonie.
“A new government could be good for CAD, and Trudeau is speeding up the process,” Ballinger said.
Small warns not to expect major shifts on the Toronto Stock Exchange as a result of Trudeau’s exit, with the TSX more closely following developments in the broader U.S. economy more than Canadian upheavals on any given day.
© 2025 Global News, a division of Corus Entertainment Inc.