Loonie Recovers After Election Results and Ahead of Bank of Canada

Majority Election Win Creates Stability ahead of Bank of Canada interest rate decision.

The Liberal party of Canada won a majority in parliament after the longest election campaign in modern Canadian history. Prime Minister elect Justin Trudeau was able to come back from a third place in polls at the beginning of the race to a win that seemed unlikely given the 2011 elections that left the party decimated.

It is still too early to know the way the Trudeau government will shape the course of the nation, but in the currency markets the end of an election campaign with a clear and majority winner gave the CAD a boost. During the past 24 hours the USD/CAD has depreciated 0.33 percent as the loonie traded below the 1.30 support line.

Praising the Bank of Canada and with no plans to modify its mandate was a comment all parties stated during the election campaign. The Bank of Canada (BOC) will announce changes to its monetary policy on Wednesday, October 21 at 10:00 am EDT. There are no changes expected to the the BOC benchmark rate at 0.50 percent. Improving economic fundamentals could put any action from the central bank on hold until next year. The BOC has already cut interest rates twice in 2015.

BOC Expected to Hold Rates in October

The Bank of Canada has been a solid steward for the economy. The central bank has cut rates twice in 2015 and in hindsight those were good pro active moves as Governor Stephen Poloz had to anticipate a lack of action from the Federal Reserve to give Canadian exports a price advantage to offset the losses record in the energy sector. The benchmark rate in Canada is 0.50 percent. There are no changes expected in the remaining of the year, and economists forecast the next move will be upwards, but only until 2017. The economic fate of Canada is deeply linked to that of the U.S. recovery.

TPP in Doubt as Liberal Review Must Take Place

There are question marks around the Trans Pacific Partnership (TPP) that might come to the fore if the deal is not ratified by a new government. The TPP offers Canada an opportunity to diversify away from a U.S. dependency, but there will be caveats on what Canada has to give up in order to unlock those gains. One of the biggest criticism the Liberal party made ahead of the elections was the level of secrecy imposed by the Conservative party. There is the anticipation a review of the TPP will have to happen from a newly formed Liberal party, but overall Canada is expected to ratify the agreement with the other 11 partner nations.

CAD events to watch this week:

Wednesday October 21
10:00 am CAD BOC Monetary Policy Report
10:00am CAD BOC Rate Statement
10:00amCAD Overnight Rate
11:15 am CAD BOC Press Conference
Thursday, October 22
8:30 am CAD Core Retail Sales m/m
Friday, October 23
8:30 am CAD Core CPI m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza