At the turn of the year, it looked like a certainty that Conservatives would form a large majority in this year’s Canadian election but Trump changed everything. His harsh tariffs on Canada and unceasing 51st state talk upended the focus on housing/immigration/culture and put it squarely on sovereignty.
Conservative leader Pierre Poilievre struggled to strike the right chord on that issue and the Liberal Party replaced the unpopular Justin Trudeau with the electable Mark Carney. With that, and a collapse in the left-leaning NDP, the polls have been flipped upside down.
Liberals now enjoy a roughly 5 point advantage in a split that will likely lead to a majority.
The reversal in fortunes is one of the all-time unexpected swings in western democracies.
Canada election probabilities
Of course, the polls have been wrong many times in the past decade so we will wait for Monday’s results.
If anything, there will be some modest disappointment in CAD if the Liberals win, though I would expect something less than 50 pips in USD/CAD as it should be widely priced in now.
Based on polling averages, Scotia estimates an 80% probability of a Liberal majority. The remaining probabilities are for a Liberal minority or Conservative minority, with only a tail rise of an outright Conservative win.
The worst-case scenario for the loonie would be another Liberal government propped up by the NDP and/or Bloc Quebecois. That would stifle Carney’s touted agenda to improve building conditions in Canada and extend the bloated bureaucracy.
In contrast, if the Conservatives pull out a win, I would expect to see a relief rally in the loonie, that could extend to a full cent — all else equal.
After the dusk settles, I think the larger ultimate signal for Canadian assets will be how Carney forms cabinet. We still have scant ideas on what he wants to do and if he stacks it with former Trudeau ministers — particularly in the environment portfolio — then it could spell trouble.
Most notably though will be how Trump and Carney get along. The early indications are that the 51st state talk isn’t going to go away.
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