The Loonie could drop its value in the weeks prior to the October general elections. Local analysts opine that the exchange rate of CAD can be volatile for the few weeks before the run-up to the late October elections.
The recent gains of CAD against USD and Pound sterling make it sensitive to the political uncertainty in the capital. Forex analysists, however predict that the election hedging will be less skewed than that of the previous years to USD/CAD hedging. The policy platforms and the results of the opinion polls may have a serious impact on CAD forecast.
Experts say that there may be a fall in the CAD as international investors may look for measures to hedge their investments, in a bid to protect themselves before the general elections. These investors will place bets on the negative CAD forecast to protect themselves from the losses due to negative exchange rate. They can offset the losses caused by reduction in the value of Canadian assets using the profits from the bets on reducing CAD. But betting on the falling Loonie can result in an increased supply of CAD in the market, which may further reduce its value.
Apart from the hedging pressure from investors, the policy initiatives from Right are also predicted to have an impact on the USD/CAD rate. This creates a two-sided election risk for CAD. Engaging market participants throughout the election debates may help to reduce the pressure on Loonie.
The main problem Canada is facing right now is the absence of infrastructure to export its oil and petroleum products to global markets other than its preferred trade partner the USA. Apart from this, there are a host of other policy issues that make it expensive to import Canadian products for overseas consumers.
Andrew Scheer of Conservative party may come up with a competitive plan to strengthen the CAD, in his election debates. Any positive policies from Scheer that aim to strengthen the CAD forecast may move the USD/ CAD in the right direction by 2.5%.
The result of October election is going to have a great impact on the CAD forecast. Apart from the election results, the rate cuts from Bank of Canada and global indicators will also determine the fate of Loonie in the coming months.