Uncertainty of new Canada gov't seen weighing on C$, energy sector

Tue Oct 20, 2015 1:42am EDT
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By Leah Schnurr

OTTAWA Oct 20 (Reuters) - The election of the first Liberal Canadian government in nearly a decade will likely weigh on the country's currency and energy stocks on Tuesday as investors take a cautious approach to the party and its untested prime minister.

Liberal leader Justin Trudeau rode a late campaign surge to a stunning election victory on Monday, turfing the incumbent Conservatives with a far more resounding victory than polls had indicated.

Although the majority win removed some of the uncertainty that an unstable minority government could have caused, analysts said it will take time for markets to adjust to the new administration.

"We've had nine years of Conservative leadership now, so for the most part ... Canada and the international investment community knows what to expect from a Conservative government," said Scott Smith, senior market analyst at Cambridge Global Payments.

The prospect of a new government weighed on the Canadian dollar during Monday's session. The currency extended its weakness against the greenback in overnight trading, hitting C$1.3048, or 76.64 U.S. cents.

One of the biggest changes the new government will bring is its plan to run C$10 billion deficits for three years in order to boost infrastructure spending in a bid to bolster the economy. By contrast, the Conservatives campaigned on balanced budgets.

"There's still questions as to whether Trudeau can effectively run the economy in that deficit position and then bring back a balanced budget in year four," said Smith.

Even so, government bond prices were little changed.   Continued...