In the latest developments of the Canadian election, CTV News reports that the Liberal Party, under the leadership of Mark Carney, is projected to form a minority government.
CTV News indicates that the Liberals have secured 156 of the 343 electoral districts. The Conservative Party, led by Pierre Poilievre, is expected to remain the opposition, currently holding 144 districts. A total of 172 seats are needed for a majority.
Market observations
USD/CAD is rebounding to approximately 1.3850, as the Canadian Dollar (CAD) weakens amidst expectations of a Liberal minority government.
Canadian Dollar FAQs
The primary factors influencing the Canadian Dollar (CAD) include the interest rate policies of the Bank of Canada (BoC), the price of Oil, a major Canadian export, the overall strength of the Canadian economy, levels of inflation, and the Trade Balance, reflecting the difference between Canada’s export and import values. Additional factors encompass market sentiment – whether investors are embracing riskier assets (risk-on) or seeking safer investments (risk-off) – with a risk-on environment generally favoring the CAD. Given the close trading relationship, the health of the US economy also significantly impacts the Canadian Dollar.
The Bank of Canada (BoC) wields considerable influence over the Canadian Dollar through its control of the overnight interest rate, which affects rates across the financial system. The BoC’s primary objective is to maintain inflation within a target range of 1-3% by adjusting interest rates. Relatively higher interest rates typically support the CAD. The Bank of Canada can also employ quantitative easing and tightening measures to manage credit conditions, with easing generally weakening the CAD and tightening strengthening it.
The price of Oil is a critical determinant of the Canadian Dollar’s value. As Canada’s largest export commodity, Petroleum prices tend to exert a direct influence on the CAD. Generally, an increase in Oil prices corresponds to an appreciation of the CAD, reflecting heightened demand for the currency. Conversely, a decline in Oil prices typically leads to a depreciation of the CAD. Elevated Oil prices also tend to increase the likelihood of a favorable Trade Balance, further bolstering the CAD.
While traditionally, inflation was viewed as detrimental to a currency due to its erosion of purchasing power, the opposite has often been observed in recent times with the easing of international capital controls. Higher inflation often prompts central banks to raise interest rates, attracting increased capital inflows from global investors seeking attractive returns. This heightened demand for the local currency, in this case the Canadian Dollar, tends to support its value.
Releases of macroeconomic data, which provide insights into the health of the economy, can significantly impact the Canadian Dollar. Indicators such as GDP, Manufacturing and Services PMIs, employment figures, and consumer confidence surveys can all influence the CAD’s trajectory. A robust economy generally benefits the Canadian Dollar, attracting foreign investment and potentially prompting the Bank of Canada to raise interest rates, thereby strengthening the currency. Conversely, weak economic data is likely to exert downward pressure on the CAD.
