07:09 AM EDT, 05/02/2025 (MT Newswires) -- In April, the Canadian dollar (CAD or loonie) strengthened against the US dollar (USD) in terms of London closing rates from 1.4374 to 1.3820, noted MUFG.

The Bank of Canada at its meeting in April kept

the key policy rate unchanged at 2.75%, following seven cuts at consecutive meetings totalling 225bps.

The Canadian dollar gained notably in April and was helped by the fact that the United States reciprocal tariff announcements on April 2 excluded USMCA-related goods, and then by the decision from the President Donald Trump administration to exclude auto-parts imports for autos manufactured in the U.S, said the bank.

Canada is still impacted by the trade uncertainties but

these carve-outs mean by less than investors originally feared, stated MUFG. Monday's parliamentary election resulted in a very close race with the Liberals just falling short of an outright majority but well positioned to run a reasonable, stable government with NDP

and possibly the Greens.

The Liberals ended up just three seats short of an outright majority.

CAD remained stable, with the result broadly in line with polling predictions, pointed out the bank.

Investors will view Prime Minister Mark Carney as a credible leader to deal with the now fraught

U.S.-Canada relationship. But that relationship and the normal cyclical forces for the economy after the global inflation-shock related monetary tightening mean there are downside risks to the economy going forward, aded MUFG.

The BoC will certainly have to ease further and potentially by more than implied by the OIS market -- two 25bps cuts by year-end, according to the bank. There was a 32,000 drop in employment in March and existing home sales fell 4.8% month over month in March after a 9.8% drop in February.

Rate cuts don't seem to be supporting the housing sector yet and CAD appreciation means no offset to the negative external demand shock, said MUFG. In circumstances of a broad-based US dollar (USD)

weakness, the bank expects CAD to underperform most other G10 currencies.