Rising oil prices and the liberal re-election of Prime Minister Justin Trudeau strengthened the Canadian dollar against its US counterpart, leaving the door open for more fiscal spending.
Trudeau acknowledged that he would need to work with other parties after losing a majority in parliamentary elections on Monday, leaving him once again dependent on opposition legislators to rule.
“Unlike most high-income countries, Canada is unlikely to initiate near-term financial consolidation,” Mark Chandler, chief market strategist at Bannockburn Granthshala Forex, said in a note.
“A policy mix of tight monetary policy and relatively loose fiscal policy favors the currency.”
Foreign investors 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 promised a whopping $78 billion in new spending over five years, while analysts expect the Bank of Canada to further reduce its bond purchases as early as next month.
After trading in a range of 1.2742 to 1.2830, the Canadian dollar was trading 0.5 per cent higher at 1.2763 on the greenback, or 78.35 US cents.
On Monday, the loonie hit its weakest intraday level in a month at 1.2895, as asset group China Evergrande shook Granthshala financial markets, while Canada’s main stock index fell 1.6 percent, its biggest since January. There is a decline.
World stocks stabilized on Tuesday and commodity prices recovered from the previous day’s heavy selling.
Oil, one of Canada’s key exports, rose one percent to $71.01 a barrel, while December futures on the S&P/TSX 60 index advanced 0.7 percent.
Canada’s 10-year yield rose nearly one basis point to 1.231 percent.
(Reporting by Fergal Smith Editing by Paul Simao)