The impact of Justin Trudeau’s resignation on the Canadian dollar appears to be fading, as domestic politics take a backseat to systemic headwinds, including those caused by Trump tariffs and the expectation of more Bank of Canada rate cuts.

On Monday, the Canadian dollar rose 0.79 per cent from its Friday close, at one point popping above the 70-cent-U.S. mark from which it had dropped on Dec. 16 — the day Chrystia Freeland announced her resignation as finance minister.

Tuesday, the Canadian dollar was down slightly at 69.7 cent U.S., as currency experts and economists weigh the broader issues that will whipsaw the currency.

“It may be tempting to ascribe this (the loonie’s rise on Monday) to Prime Minister Justin Trudeau’s decision to step down yesterday,” Karl Schamotta, chief market strategist at Corpay Currency Research, said in a note.

But Schamotta said that the loonie’s performance on Monday compared with other major currencies suggests otherwise.

Gains yesterday by the Canadian dollar left it stuck in the middle of a pack of other currencies, including the Mexican peso, the Australian dollar, the pound and the euro.

That tells Schamotta, “traders don’t see short-term domestic political developments changing the longer-term economic calculus that has kept the exchange rate under pressure.”

Trudeau wasn’t the only news the currency had to contend with.

Mixed in with the prime minister’s announcement was a Washington Post story quoting advisors close to Trump who said that any United States tariffs were more likely to be implemented on a targeted basis,  rather than across the board, and gradually.

That story came out around 7 a.m. EST. A few hours later, Trump rebutted the Post piece on his Truth Social platform.

Given that the peso and the loonie moved in a somewhat narrow range on the news, Schamotta thinks such currencies still face “significant downside risks” and have yet to depreciate “to the extent that would be consistent with tariff loads exceeding 20 per cent.”

In a fresh note on Tuesday, CIBC Fixed Income Currency and Commodity experts said that a Trump administration will role out tariffs at the slower pace described in the Washington Post article.

This still leaves the Canadian dollar exposed.

“We expect continued volatility in USD/CAD off headline risks,” the note said. “We see the tariff premium in USD/CAD building through Q1 as Trump ramps up tariff rhetoric, at the same time as Canada ramps up for a federal election, which is likely to see a flip in the governing party.”

Also in an early morning note Tuesday, David Rosenberg, founder of Rosenberg Research and Associates Inc., said contracting data released Monday confirmed for him that more interest rate cuts are coming to counteract a slowing economy.

The S&P Global Composite Purchasing Managers’ Index for December fell below 50, indicating the sentiment among managers at manufacturing, construction and services firms is slumping.

That “serves as a reminder that the (Bank of Canada) has more work to do even as the (Federal Reserve) moves to the sidelines (at least for now),” Rosenberg said.

More rate cuts from the Bank of Canada will result in the Canadian dollar falling further against its American counterpart as investors chase the higher returns from the greenback.

• Email: gmvsuhanic@postmedia.com

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