CANADA FX DEBT-C$ stronger after initial weakness following Liberal victory

Tue Oct 20, 2015 4:25pm EDT
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* Canadian dollar at C$1.2982, or 77.03 U.S. cents
    * Bond prices lower across the maturity curve

 (Adds details, quote, updates prices)
    By Alastair Sharp and Leah Schnurr
    TORONTO/OTTAWA, Oct 20 (Reuters) - The Canadian dollar
strengthened against the greenback on Tuesday after voters
elected a majority Liberal government that pledged to spend
money to boost growth, which could limit the need for the Bank
of Canada to cut interest rates.
    Liberal leader Justin Trudeau rode a late campaign surge to
a stunning election victory on Monday, toppling incumbent
Conservative Prime Minister Stephen Harper with a more
resounding victory than polls had indicated. 
    During the campaign, Trudeau promised to run three years of
deficits to invest in infrastructure and help stimulate anemic
economic growth.
    "The fiscal-monetary mix is going to be potentially slightly
different than has been the case and would have been the case
under another Harper administration," said Jeremy Stretch, head
of foreign exchange strategy at CIBC World Markets.
    The Canadian dollar ended the North American
trading session at C$1.2982 to the greenback, or 77.03 U.S.
cents, stronger than Monday's close of C$1.3019, or 76.81 U.S.
    The prospect of a new government had weighed on the loonie
immediately following the election results, weakening to as low
as C$1.3048, or 76.64 U.S. cents.
    Although the idea that stimulus spending will allow the
central bank to be less aggressive in cutting rates makes sense,
it can take a while for governments to enact policy, said Rahim
Madhavji, president at 
    "While they can commit to running deficits, actually pushing
the money out takes a very, very long period of time."  
    While some analysts said the uncertainty of a new government
weighed on the currency, they also noted things were more
certain than if it had been a minority government, and that
energy and commodity prices were a major influence.
    Stretch said the currency would likely weaken through the
remainder of the year, perhaps as high as C$1.36 to the
greenback, given the U.S. economy appears to be growing faster
than Canada's and its central bank is close to raising rates.
    With the election out of the way, markets were focusing on
Wednesday's rate decision from the Bank of Canada. The bank has
cut rates twice this year but is widely expected to leave them
at 0.50 percent.
    Canadian government bond prices were x, with the two-year
 down 4.5 Canadian cents to yield 0.548 percent and
the benchmark 10-year fell 59 Canadian cents to
yield 1.520 percent.
    Spreads to U.S. Treasuries were little changed even with the
new government's plan to run deficits.

 (Additional reporting by Lisa Twaronite in Tokyo; editing by
Nick Zieminski and Grant McCool)