I'm betting my new Bentley that last Friday, Canada's Conservative House leader John Baird didn't know that his party was going down just hours after he poured maple syrup on his pancakes. You see, parliament was only supposed to vote on the 2011-2012 budget bill last Friday, but the opposition parties had other plans.
For all the politics fanatics out there, you should know that the Canadian Parliament currently has four political parties (not your kind of parties, Happy Pip): The Conservative Party of Canada (the governing party), the Liberal Party of Canada (the official opposition party), the New Democratic Party, and the Bloc Québécois (a party that aims to separate Quebec from Canada.)
In a move that surprised even the calm Dr. Pipslow (who gave me his old Bentley), all three opposition parties voted not only against the new budget bill, but also against the Conservative Party itself! The motion for non-confidence over the 2011 budget bill gathered 156 votes, a few "ayes" ahead of the governing party's 145 votes, on grounds of the Conservative Party not sharing enough information on bills presented in the Parliament. Talk about bringing down the house!
The bigger showdown will transpire on May 2 when an election will take place, but market hotshots are already placing their bets. Word around the street is that the Conservative Party still has the majority of votes, with a ratings approval rate of 39%, while the Liberals and NDP only have a scores of 28% and 20% respectively.
So what got all 'em politicians so worked up like hockey players? Apparently, some had issues with Prime Minister Stephen Harper's proposed budget for 2011. Let me give you a short recap.
In the proposed budget, the government would step on the breaks of its two-year old, 60-billion CAD stimulus program. According to the head honcho himself, although there are still external risks to the Canadian economy, he is confident that it will be able to cruise up the path of recovery with little trouble.
The proposed budget focused on stimulating growth by improving higher education and digital innovation, investing in machinery and equipment, and infrastructure spending. At the same time, the government hopes that Canada will have erased its deficit by 2015 or 2016 after setting a record high of 55.6 billion CAD in 2010.
The problem that the opposition parties had with the budget was the Conservative Party's view on corporate tax rates. Finance Minister James Flaherty stated that increases in corporate taxes will be unnecessary and that the Canada is on track to post a 4.2% budget surplus in 2016 even without hiking taxes. Heck, the Conservative Party even wants to CUT federal corporate tax rates, which are at 16.5%, further down to 15.0%!
The Conservatives' insistence on lower tax rates ruffled the feathers of the opposition, as they believe that the proposed tax cuts could cut into the government's revenue stream. In fact, the opposing parties actually want to RAISE corporate tax rates.
You would think that all this led to a drop right in CAD sentiment right? Well, not really.
Yes, the CAD lost out on Friday, but the move wasn't ginormous. USD/CAD rose just 57 pips from its opening price, well within its normal average true range. Besides, USD/CAD was already rising at the time due to the overall dollar strength we saw at the end of last week.
With that said, I don't think that this "crisis" will have any lasting effects on Loonie trading. Political uncertainty is as normal as a baby growing up with a puck in his mouth. In fact, over the past seven years, Canada has had only four elections and during that span, a minority government was always in charge! And yes, for those keeping count, Justin Beiber was still in preschool when the Canadian government had a majority ruling party.
In the meantime, there's no reason to believe that the Loonie won't remain strong and on the right side of parity. Canada has been posting solid budget figures, has strong demand, and gets an additional boost from rising oil prices. Politics or not, what's not to like about the Loonie?