CAD: Relinked with USD before elections – ING

FXStreetApr 24, 2025 9:15 AM

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The Canadian Dollar (CAD) has suffered much less than any other G10 currency from the USD rebound since Monday, when it had instead remained flat despite widespread rallies against the US Dollar (USD), ING's FX analyst Francesco Pesole notes.

CAD reconnects with USD as tariff risks fade

"Since 'Liberation Day', the loonie and USD have re-linked. This used to be the norm before Trump’s attack on Canada with tariff threats started late last year. The ongoing re-linking has probably been a consequence of Canada being spared 2 April reciprocal tariffs, which allowed markets to default to trading the loonie as an extension of US growth sentiment (a key driver of Canadian activity) and therefore being highly correlated with the USD again."

"USD/CAD observed volatility has been significantly lower than other G10 currencies since 'Liberation Day' – confirming the USD/CAD relinking – but the 1-week ATM volatility is trading at around 1.30 to 1-week historical volatility. That is unusual for USD/CAD before federal elections, meaning that markets are attaching a greater FX risk to this vote."

Our view is that markets are probably taking hints from polls and pricing in a majority win by the Liberals and current Prime Minister Mark Carney. If that ends up being the result next week, then the CAD impact should be limited and quickly overshadowed by borrowed USD volatility.

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