The Canadian dollar strengthened against its U.S. counterpart on Tuesday as oil prices rose and the re-election of Prime Minister Justin Trudeau’s Liberals kept the door open to more fiscal spending.
Trudeau acknowledged he will need to work with other parties after he fell short of winning a majority in parliamentary elections on Monday, leaving him once more dependent on opposition legislators to govern.
“Unlike most high-income countries, Canada is unlikely to embark on near-term fiscal consolidation,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said in a note.
“A policy mix of tighter monetary policy and relatively looser fiscal policy tends to be supportive of the currency.”
Foreign investors had worried that the election could result in a deadlock that would hamper Ottawa’s response to the COVID-19 pandemic and further slow the economic recovery from the crisis.
The Liberals have pledged a substantial $78 billion in new spending over five years, while analysts expect the Bank of Canada to further reduce its bond purchases as soon as next month.
The Canadian dollar was trading 0.5 per cent higher at 1.2763 to the greenback, or 78.35 U.S. cents, after trading in a range of 1.2742 to 1.2830.
On Monday, the loonie hit its weakest intraday level in one month at 1.2895 as troubles at property group China Evergrande roiled global financial markets, while Canada’s main stock index fell 1.6 per cent, its biggest decline since January.
World stocks stabilized on Tuesday and commodity prices recovered from the previous day’s heavy selling.
The price of oil, one of Canada’s major exports, was up one per cent at $71.01 a barrel, while December futures on the S&P/TSX 60 index advanced 0.7 per cent.
The Canadian 10-year yield rose nearly one basis point to 1.231 per cent.
(Reporting by Fergal Smith Editing by Paul Simao)
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