CANADA FX DEBT-C$ stronger after initial weakness following Liberal victory
* 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. cents. 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 KnightsbridgeFX.com. "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)
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