Canadian Dollar rises to seven-week high as markets digest US election results

The Canadian Dollar (CAD) surged to a seven-week high on Wednesday, following the conclusion of the US midterm elections. As of the latest update, the CAD/USD exchange rate stood at approximately 1.3933. The US Dollar (USD) faced selling pressure due to the Democrats' victory in the House and Senate, resulting in a split between Congress and the White House.

The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, hit its lowest level since September 30. Meanwhile, oil prices declined as traders evaluated the potential impact of a Democratic-controlled Congress on the ongoing conflict with Iran. ING economists noted that the election results signal a crucial shift in policy-making in Washington, with a Democrat-controlled Congress likely to impede President Trump's domestic agenda in his remaining years in office.

This shift could result in gridlocked spending, tax proposals, and other legislation. However, ING warned that the lack of new stimulus does not necessarily imply fiscal consolidation, as large fiscal deficits and deteriorating debt dynamics are expected to persist. Nonetheless, strong US economic growth and a hawkish Federal Reserve (Fed) outlook may curb further US Dollar declines in the near term.

Positive economic data, such as US private-sector employment rising by 86K in October and surpassing expectations, also bolstered the CAD. Bank of Canada Governor Tiff Macklem's comments about potential further rate hikes added to the Loonie's strength.