Last week, the Canadian Dollar began to fall precipitously, reaching a 7-month low. There were several factors which help to explain the sudden drop. First, Canadian Parliament passed a bill which effectively called into question the Prime Minister’s leadership. The bill goes so far as to demand the PM’s (Paul Martin) resignation. Next week, Parliament will vote on Martin’s federal budget proposal. Analysts agree that a rejection of the budget is tantamount to a vote of no-confidence in the prime minister. A second cause for the decline in the Canadian Dollar may in fact be Canada’s declining trade surplus. As the Canadian Dollar has appreciated, Canadian exports have become less competitive. As a result, manufacturing output and exports have both declined in recent months. The Canadian Dollar may suffer a "correction" in the short term as investors brace for political and economic uncertainty. Bloomberg News reports:

Canada’s dollar has slipped 3.3 percent since April 7, when Justice John Gomery released the first portions of testimony from an inquiry that showed the ruling Liberals received payments in exchange for government advertising contracts in the province of Quebec. The scandal prompted the Conservatives to call for a no- confidence vote.

Read More: Canadian Dollar Drops to 7-Month Low on Trade, Election Concern