Intraday Market Thoughts

CAD Lower Ahead of Election Results

by Ashraf Laidi
May 3, 2011 2:46

The Canadian dollar was the G10 laggard ahead of election results on Monday. Polls predict the right-wing Conservative party will maintain power. The key question is whether they will win a majority of the 155 seat Parliament or continue to govern with a minority.

The Conservatives with roughly the same level of support as the 2008 election when they came 12 seats short of a minority but vote splits in Canada’s first-past-the-post system could spawn a majority. In the past, elections have had minimal lasting impact on CAD and that will continue. Markets may slightly favour a Conservative minority as that formula has worked well for the past 5 years. There is a risk that with a minority the remaining parties may band together in a coalition to take power. Any hints of this during post-election speeches will immediately weigh on CAD. The effects would likely continue through the rest of the week and then would later be evaluated based on policy proposals.

There is also a very small chance to leftist New Democratic Party could spring from third place to within striking distance of the Conservatives. A poll on the eve of the election put them only 3 percentage points behind. A majority is out of the question but a strong NDP result could initially hurt CAD. Another potential CAD negative result would be one where the NDP and centrist Liberal Party have enough support to form a coalition without the separatist Bloc Quebecois. With so many moving parts in this election, some traders have decided to head for the sidelines and that has weighed on CAD. Time and time again, as we saw in the UK last year, election fears rarely translate into policy and are oftentimes great buying opportunities. A full picture of the results may not be clear until 0200 GMT, or later.

By AB - Staff


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