What does today's Canadian election mean for the loonie

The simplest preview for the Canadian election is a look at how past elections have affected the Canadian dollar.

The answer: Nearly nil.

The same two parties have governed Canada for more than 100 years and it's an extremely stable democracy. The outcome will be the same as it always is: A Liberal or Conservative win.

Polls are inconsistent with anything from a 4-point Conservative win to a 6-point Liberal win in the past week. For a time, the Conservatives had pulled decisively ahead but a late surge in the far-right People's Party reeled Erin O'Toole's Conservatives back in.

Poll averages from the CBC:

Trudeau Otoole

Given Canada's first past the post system and the concentration of the Conservative vote, even at their peak polling support, Conservatives were still likely to lose.

Now, it's more likely that Liberals will retain power and Justin Trudeau will remain Prime Minister. I'd peg that at a 90% probability. If there better polls turn out to be true, they could extend that to a majority, which is what Trudeau was hoping for when he called an early election.

If O'Toole manages to win the most seats it will be a complicated situation. Conservatives don't have any natural allies so it could result in another election fairly quickly. What would buy them some time is that Trudeau would assuredly resign, possibly even tonight. That would set off a rare for the Liberal leadership with finance minister Chrystia Freeland as the favorite and former BOC/BOE Governor Mark Carney as perhaps her strongest challenger.

Despite the uncertainty, I believe an O'Toole win would lead to CAD buying for the remainder of the week.

There's also a scenario where Trudeau returns with a weakened minority and he also resigns. Many in the party think he's turned into a liability and calling this election adds to that sentiment.

Timing Questions

We will start to get some results at 7:30 pm ET (2330 GMT) with the key data coming in two hours later. I will have live coverage of it at ForexLive.

We will get a pretty good idea of how Trudeau is doing when the East coast votes come in but it won't be until a look at Ontario and Quebec numbers that it's clear. And there's a chance it could be a long night if it's close. Moreover, there may be 1 million mail-in votes (in a country of 35 million) and those won't be counted until tomorrow.

So there's a tail rise that there's an uncertain result. Even then, I wouldn't expect significant Canadian dollar selling.

What's the trade?

At the moment, China concerns are a far bigger factor for the Canadian dollar than the election. I expect that to extend through Tuesday. Then we get the FOMC and PBOC meetings on Wednesday. All that leaves nearly no opportunity for the loonie to shine on its own. At best, there may be a relative value trade against another commodity currency.

Overall, it's likely best to sit this one out and wait for the dust to settle.