Trudeau's Liberals were on track to win the Canadian election, the CBC and CTV television networks projected as results trickled in, but they looked set to fall short of their goal for a majority win.
"This does look like a decisive win for the Liberals that essentially preserves the status quo and ensures that the fiscal spending plans that have supported the economy for the last year and half are likely to continue," said Karl Schamotta, chief market strategist at Cambridge Global Payments.
Foreign investors had worried that the election could result in a deadlock that would hamper Ottawa's response to the COVID-19 pandemic and further slow the economic recovery from the crisis.
"The more supportive fiscal policy is, the more likely the Bank (of Canada) is able to move from tapering to rate hikes in the next year and a half," Schamotta said.
The Liberals have pledged a substantial C$78 billion in new spending over five years.
The Canadian dollar was trading 0.3% higher at 1.2785 to the greenback, or 78.22 U.S. cents, after trading in a range of 1.2779 to 1.2830.
On Monday, the loonie hit its weakest intraday level in one month at 1.2895 as troubles at property group China Evergrande roiled global financial markets.
The loonie's gains on Tuesday came as markets showed signs of calming and as oil, one of Canada's major exports, rebounded. U.S. crude oil futures were up nearly 1% at 70.98 a barrel.
(Reporting by Fergal Smith; Editing by Edmund Klamann)
By Fergal Smith
