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Loonie Volatile Ahead of Tuesday’s Election

Published November 7, 2016
  • USDCAD has proven to be rather volatile ahead of Tuesday's election, with spot covering 155pts from Friday's high in the mid 1.34's to Sunday's low just above 1.33
  • Sunday's headline that the FBI uncovered no new evidence with which to charge Clinton in relation to her questionable email practices has been the dominant theme to start the week
  • The US dollar initially sold off on the news late Sunday as risk assets such as CAD, MXN, equities and oil all gained favour
  • However, as the headlines were digested and the odds of a Clinton victory once again became the more likely outcome, the greenback recovered with broad based gains of 0.5% for the USD Index at the time of writing
  • The most recent NBC-WSJ poll reveals a 4 point lead for Clinton, which is where we stood 10 days ago before the FBI re-opened its email investigation
  • Broadly speaking, a Clinton victory is the most market-friendly outcome as she represents relative continuity of policy, especially when it comes to the Fed which has signaled a rate hike in December
  • A Trump victory would certainly be the most voraciously volatile outcome with risk assets (equities, commodities) and the US dollar likely to get hit as investors scramble for cover into safe havens such as the Japanese Yen and Swiss Franc
  • The third outcome, a race too close to call, would likely bring just as much uncertainty and may even throw a Fed rate hike into question which would also hit the USD
  • And finally, if we do get a Clinton victory, attention will turn to whether she will have a Democrat-dominated Congress to support her policy ambitions
  • Aside from the election, this week's economic calendar is rather light with Canadian housing starts and US consumer sentiment as the highlights
  • Oil prices recovered from last week's 6% plunge with WTI up 1.5% this morning as OPEC restated is commitment to a production deal; however, any positive impact on CAD has been overshadowed by expectations for Tuesday

Charts: (1) USDCAD. (2) Fed rate hike odds. (3) Economic Calendar.