Election Uncertainty + Trade War = CAD Under Pressure

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.4140-1.4370

Euro                 1.5490-1.5720

Sterling            1.8150-1.8380

WTI Oil (opening level) $70.25

The CAD/USD is opening at 1.4247 ( 0.7019 )

The USA trade war is not good for Canada. The Canadian economy will suffer from lower crude oil prices (though it is nice to fill up the tank last night at 1.179 a litre). But trade uncertainty is prompting businesses to scale back their sales outlooks. This affects investments plans and hiring intentions. So look for more weakness in the CAD as the week unfolds.

I based this on chatter that the Liberals win the election, and the bank of Canada continues to lower interest rates while the USA holds steady - creating a greater divide that makes the CAD less attractive in the eyes of the world.

Headlines

·    Japan’s Prime Minister Ishiba said he would seek a “package” deal with the US on trade that might take some time to put together, as he aimed to talk to Trump later this week. The package would involve LNG, autos, agricultural products and national security, according to local media in Japan.

·    Goldman Sachs raised their recession probability to 45% from 35% and lowered their 2025 Q4-to-Q4 GDP growth forecast to 0.5% from 1%. They expect the Fed will deliver three 25-basis point cuts which could rise to 200 bp over the next year in a recession scenario. This follows “a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed,”

·    Federal Reserve Chairman Jerome Powell stated on Friday that he anticipates President Donald Trump's tariffs will increase inflation. However, the central bank will not adjust interest rates until it has a clearer understanding of the tariffs' effects.

·    US NEC Director Hassett expects job numbers to fluctuate with tariffs in place. Over 50 countries have approached the White House for trade talks. President Trump opted not to impose tariffs on Russia due to ongoing Ukraine war negotiations.

·    Trump doubles down on the tariff narrative by indicating that he is not prepared to claw back any tariffs despite the market selloff. China said they would take “resolute measures” to safeguard its interests, including immediately restricting exports of seven types of rare earths. The EU has also retaliated to the Trump tariffs, placing tariffs on $28b worth of US goods. Both Taiwan and Vietnam have also offered to reduce their US tariffs to 0%, with Vietnam asking for a delay on the implementation of the tariffs against them.

Key Points

·    Equities: Tariff-driven plunge; recession fears escalate; severe tech and financial sector losses; major earnings ahead

·    Volatility: Extreme VIX spike; short-term indicators show panic; crucial economic data this week

·    Digital Assets: Bitcoin below $80k; altcoins sharply lower; crypto stocks mixed amid macro pressures

·    Currencies: Pro-cyclical currencies weaken on risk aversion, JPY and CHF stronger in chaotic session overnight but weaken sharply off highs

·    Fixed Income: Meltdown in risk sentiment boost sovereign bonds as emergency rate cut odds rise half-heartedly

·    Commodities: A recession-driven deleveraging shock extended into Monday’s session, led by copper and crude