Canada currency, energy shares fall as new govt relies on left-leaning parties

Reuters . Toronto | Published: 00:00, Oct 23,2019


The Canadian dollar weakened against the greenback on Tuesday and its heavily weighted energy sector fell on the Toronto stock market, as investors worried that a minority government would make building of new oil pipelines more difficult.

Canada’s energy industry saw its worst-case election result materialize on Monday as the Liberals failed to secure a majority government, leaving them in need of support from left-leaning parties that are opposed to new oil pipelines.

Canada’s energy sector declined 0.5 per cent even as oil prices rose, with shares of Canadian Natural Resources Ltd falling 0.8 and pipeline company Encana Corp down 1.4 per cent.

The energy sector has the second largest weighting on Toronto’s benchmark stock index at about 16 per cent, while oil is one of Canada’s major exports.

‘The market will be watching closely for signs on how a minority government will manage the resource sector and how energy companies will react to the results,’ said Adam Button, chief currency analyst at ForexLive. ‘In the short term, there are some downside risks for the Canadian dollar but the rule of thumb on every election is to buy the dip and that will prove true again.’

At 10:08am (14:08 GMT), the Canadian dollar was trading 0.1 per cent lower at 1.3108 to the greenback, or 76.29 US cents. Earlier in the session, the currency notched its strongest level since July 22 at 1.3071.

The election outcome could also lead to increased fiscal spending. Trudeau has said that he would nearly double the deficit from C$14 billion in the fiscal year that ended in March.

‘To get support on Liberal bills, the government will need to include items supported by at least one of the other parties,’ said Craig Alexander, chief economist at Deloitte Canada. ‘This is likely to lead to modestly more government spending and investment.’

Still, Canadian government bonds rallied after data from Statistics Canada showed that Canadian retail sales were down 0.1 per cent in August from July. Analysts had forecast a 0.4 per cent increase.

The two-year bond price rose 9.5 Canadian cents to yield 1.607 per cent and the 10-year price was up 42 Canadian cents to yield 1.519 per cent.

The gap between Canada’s 2-year yield and its US equivalent narrowed by 3.6 basis points to narrow the spread in favour of Canada’s bond to almost zero.

The Bank of Canada will release the autumn issue of the Business Outlook Survey at 10:30am ET (14:30 GMT), which could help guide expectations for its policy outlook.

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