Written by the Market Insights Team
Liberals win, but no majority is a problem
Kevin Ford – FX & Macro Strategist
The Liberal Party was seemingly dead and buried in December last year. Yesterday, they won the federal election. Mark Carney, a banker with no prior experience as a Member of Parliament, is now Canada’s newly elected Prime Minister. Here are some key insights that emerged following the election results:
– With votes still counting, the Liberals are poised to form a minority government, while the Conservatives have significantly expanded their seats and voter base. Meanwhile, the NDP and Bloc Québécois suffered dramatic losses.
– The Conservatives secured the highest number of votes in a federal election since 1988.
– The NDP emerged as the biggest loser, with their seven-seat gain putting them at risk of losing party status. Back in 2015, the NDP came very close to forming government.
– Ontario, particularly the Greater Toronto Area, flipped to the Conservatives, who took 10 seats from the Liberals.
– The 905-belt also shifted to the Conservatives.
– Southeastern Ontario, a key region for the auto industry, followed suit.
– The popular vote was nearly evenly split, with the Liberals edging out the Conservatives by just 1%.
– After two decades, the Conservative leader lost his own riding to a Liberal candidate. However, he’s very popular in his own caucus and will likely go back to parliament.
– In Quebec, the Liberals gained 10 seats, aided by Justin Trudeau’s final days as Prime Minister, during which he focused on securing support and committing to significant long-term investments for the province.
Canadians are not accustomed to a bipartisan system. Historically, government has been more diverse, making this minority government— with a strong opposition and a weakened NDP—a rare and complex scenario. This dynamic shift attention to the Bloc Québécois. Despite losing seats, their relative influence has grown, as the Liberals will now rely on their support to push legislation forward.
This outcome comes at a critical juncture for Canada; the economy faces mounting threats from U.S. tariffs, young Canadians grapple with concerns over housing affordability, productivity continues to lag across key industries, internal trade projects face hurdles due to a lack of unity between Quebec and the federal government, and as Canada confronts the trade war with the U.S., the urgency to diversify its economy away from U.S. reliance feels overdue.
Since March 3rd, the USD/CAD has been dropping from 1.45 and has found a strong support level at 1.38. After the news of a likely Liberal minority win, the USD/CAD reacted to the upside, trading as high as 1.387.
U.S. growth prospects slashed
Kevin Ford – FX & Macro Strategist
The central question for both markets and the economy right now is not just what the underlying economy is currently doing, but what it’s likely to do next. The latter seems to be the most critical factor in shaping sentiment. At present, the U.S. economy appears relatively strong. The job market is solid, with people earning and spending steadily. Household net worth has declined but remains in decent shape. Both consumers and companies show low leverage, leaving the economy well-positioned to face the ripple effects of tariff shocks. Additionally, AI capital expenditure has been a key support for growth, reinforcing the stability of the economy in recent months.
Despite this, uncertainty looms large. Economists and analysts are slashing their prospects of economic U.S. economic growth.
Surveys repeatedly highlight uncertainty, and forward guidance continues to echo the same sentiment. The question remains: when will these challenges tip the economy into recession? For context, the Dallas Fed Manufacturing report—a measure that’s been tracked since late 2004—shows the Business Conditions Index has seen only one larger three-month decline than the current one (-49.9), and that was during the COVID pandemic.
Another consideration is the frontloading of purchases, particularly in durable goods. This trend could sustain positive momentum for a few months, giving the illusion of stability. However, if this frontloading subsides, the market may enter a quieter phase, possibly followed by a sudden downturn—a scenario that has a reasonable chance of unfolding. This messy data, caused by frontloading, reflects the complicated dynamics at play.
The U.S. administration is stepping in to offer relief to the auto industry, according to the Wall Street Journal. The White House announced that auto manufacturers will receive refunds of up to 3.75% of the value of new cars in their first year. Following this auto-tariff news, the dollar has regained some ground but remains vulnerable amid concerns over weakening economic prospects.
Plenty of supporting factors for euro
George Vessey – Lead FX & Macro Strategist
Expect EUR/USD to continue trading around $1.13 to $1.14 in the very near term. The worst case for EUR/USD is probably $1.1250, should US data surprise on the upside. However, $1.15 could be achievable should any of this week’s job releases suggest that tariff uncertainty has already triggered layoffs. The pair remains circa 10% higher year-to-date, well above long-term moving averages, with FX options traders eying $1.20 later this year.
Although the European Central Bank is expected to lower interest rates again, it also looks as though the June Federal Reserve meeting is live for a rate cut. That will provide underlying support for the euro and keep it on a medium-term path higher.
Meanwhile, European assets could also gain from Ukrainian President Zelenskiy’s optimism for lasting peace after discussions with President Trump.
Plus, global energy demand may decline due to the US recession threat, China’s economic slowdown, and OPEC+ rifts—factors favoring cheaper oil prices. Oil-producing nations face budget challenges amid lower crude prices, while net importers like Europe benefit from reduced energy costs in transportation and industry. As a result, Europe’s energy importer status positions the euro for potential additional support.
Oil drops 5% in a week
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: April 28- May 2
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.