Effect Of Elections On CAD Forecast
As Canadians are voting to choose their next prime minister, the value of Canadian dollar is creeping up. It is touted to see more gains in the coming days irrespective of the election results.
With neck-to-neck competition between the main political parties, the election outcome is largely considered as a coin toss. Generally elections weaken the rate of currency due to uncertainty about the economic policies. However, the CAD forecast remains positive irrespective of who wins the election. The reason for this is mostly because of the striking similarities between the economic policies of both the leading political parties of the country.
Investment bankers of the country believe that the election result is not going to have a major impact on the CAD forecast. They expect a hung parliament or a minority government headed by the incumbent Prime Minister Justin Trudeau. And hence expect little or no change in the economic policies.
Rather than the election results, this week’s CAD forecast is driven by positive business outlook and retail sales. The supportive tone of risk sentiment is also aiding to strengthen the Loonie.
One of the factors for a strong CAD is the increased resilience of the Canadian bond yield due to Bank of Canada retaining the interest rates at 1.75% even when their counterparts in other countries have largely cut down the interest rates. This move made Canadian bonds attractive to foreign investors and contributed to the positive forecast.
The strengthening of job markets and increase in wage rates is another factor that has positive influence on the CAD rate. With both the parties promising significant tax cuts, the retail market is expected to be resilient.
However, the interest rate policy of bank of Canada will have a significant impact of the CAD forecast. If the BoC announces any rate cuts before later part of 2020, then it would signal difficulties for the CAD as the markets are not ready for an early rate cut.
A positive economic outlook and increased employment rate are pushing the CAD higher. The elections this time did not have any impact on the CAD forecast as both the political parties have announced similar economic polices and tax cuts.