Loonie steadies, energy shares recover after Liberal minority victory
The Canadian dollar was little changed against the greenback following the results of the federal election, holding near an earlier three-month high, as Canada’s energy shares overcame worries that new oil pipeline development would become more difficult after Monday night.
Canada’s energy industry saw its worst-case election result materialize as Prime Minister Justin Trudeau’s Liberal party failed to secure a majority government, leaving them in need of support from left-leaning parties, such as the New Democratic Party that are opposed to new oil pipelines.
But Canada’s energy sector clawed back its earlier losses to rise 0.6 per cent, buoyed by higher oil prices. U.S. crude oil future settled 1.6 per cent higher at $54.16 a barrel, according to Reuters.
The energy sector has the second largest weighting on Toronto’s benchmark stock index at about 16 per cent, while oil is one of Canada’s major exports.
“The market will be watching closely for signs on how a minority government will manage the resource sector and how energy companies will react to the results,” Adam Button, chief currency analyst at ForexLive, told Reuters. “In the short term, there are some downside risks for the Canadian dollar but the rule of thumb on every election is to buy the dip and that will prove true again.”
The election outcome could also lead to increased fiscal spending. Trudeau’s election platform planned to nearly double the deficit to $27.4 billion in the next fiscal year, while the NDP wants to invest $15 billion in climate-change measures and create a national pharmacare program.
Investors are ditching bets that the Bank of Canada will cut interest rates over the coming months as the domestic economy shows resilience and the federal election result adds to prospects of growth-boosting fiscal spending next year.
At 4:32 p.m., the Canadian dollar was trading nearly unchanged at 1.3095 to the greenback, or 76.37 U.S. cents.
After notching its strongest intraday level since July 22 at 1.3071, the loonie weakened to 1.3123 before recovering.
The rebound from session lows came as a Bank of Canada survey said that Canadian firms expect a moderate increase in sales growth over the coming year.