Investors tense up as fears of post-election gridlock rise in Canada

Polls show Prime Minister Justin Trudeau's center-left Liberals virtually tied with the opposition Conservatives ahead of the Sept. 20 vote, raising the prospect that no party will be able to form even a stable minority government. Adding to the uncertainty is an expected increase in mail-in voting that could delay the counting of ballots in some key electoral ridings.

The results of Canadian elections typically are known within hours of the polls closing. Even when no party has won a majority of the seats, it is usually clear which will form the government and what the general policy priorities will be. An outcome "that leads to a gridlocked government is going to complicate the recovery going forward, and I think that's why you are probably going to see some hesitancy ahead of the election," said Edward Moya, senior market analyst at OANDA in New York.Trudeau, who has been prime minister for six years, has relied on the backing of the New Democrats since failing to win a majority of the seats in the House of Commons in the 2019 election.

Canada's economic growth slowed in the second quarter and annual inflation spiked in August to an 18-year high, taking some of the wind out of the sails of the Liberal leader's economic argument for reelection.The Canadian dollar has fallen 1.1% to about 1.2650 per U.S. dollar, or 79.05 U.S. cents, since Trudeau called the election in mid-August, and speculators have turned bearish on the currency for the first time since last December.

The market's measure of expected volatility for the currency over a one-week period , a timeframe that covers the election, has climbed to an annualized rate of about 7.5% from less than 5% in August.

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