CANADA FX DEBT-Election jitters, oil slump weaken Canadian dollar
(Adds details, quote) * Canadian dollar at C$1.3021, or 76.80 U.S. cents * Bond prices higher across the maturity curve By Alastair Sharp and Leah Schnurr TORONTO/OTTAWA, Oct 19 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Monday as oil prices tumbled and as voters looked set to elect as prime minister a candidate who was promised to spend on infrastructure to stoke economic growth. After an unusually long 11-week campaign that was considered too close to call for much of it, polls showed a strong prospect that Conservative Prime Minister Stephen Harper's government will be ousted or reduced to a minority amid a late surge by the Liberal party. If elected, the Liberals, led by Justin Trudeau, plan to run deficits in order to increase spending on infrastructure. "It's looking like it's going to be a Liberal government," said Blake Jespersen, a managing director for foreign exchange sales at BMO Capital Markets. "Trudeau's made it clear that he has some aggressive spending plans to boost the economy, and it's not necessarily well liked by markets when government plans to spend their way out of trouble." Jespersen said worries about a potential Liberal victory may have accounted for as much as 20 percent of the weakness in the session, but that any election effect would likely not sustain itself beyond the day. The Canadian dollar was at C$1.3021 to the greenback, or 76.80 U.S. cents, by midafternoon, weaker than Friday's close of C$1.2911, or 77.45 U.S. cents. The Canadian currency has strengthened more than 2 percent this month, in line with a broader move toward riskier assets. But a drop in the price of oil, a major export for Canada, helped drag the loonie down on Monday. U.S. crude prices settled down $1.37 at $45.89 a barrel. Analysts were also looking to a Bank of Canada interest rate decision on Wednesday. After two rate cuts this year, the central bank is expected to hold steady as it updates its economic forecasts. With the market expecting rates to be held steady through the middle of next year, the risk is that the bank is more worried than the market about the effect low crude prices are having on capital spending plans, said Adam Cole, global head of FX strategy RBC Capital Markets. Canadian government bond prices were higher across the maturity curve, with the two-year up 2 Canadian cents to yield 0.528 percent and the benchmark 10-year up 6 Canadian cents to yield 1.462 percent. (Editing by Jonathan Oatis)
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